Investor Response to Cash Flow Information

In this study the usefulness of cash flow data as required by the UK standard, FRS1 , is evaluated and cash flow per share is investigated as a possible specification of cash flow data that may contain information value for security markets. Recent innovation in earnings response models are used to test the robustness of the results and provide further insights into the time series properties of cash flow numbers. The findings indicate that the disaggregation of cash flow as required under FRS1 contains information beyond aggregate cash flow but that the required disaggregation is not optimal from an information standpoint. There is little evidence of any incremental information value of cash flow per share over cash flow numbers.