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Title:Information asymmetries and the value-relevance of cash flow and accounting figures: empirical analysis and implications for managerial accounting PDF Logo
Authors:Rapp, Marc Steffen
Issue Date:2010
Series/Report no.:CEFS working paper series 2010-08
Abstract:While some of the modern performance measures used in managerial accounting rely on cash flow based figures others try to take advantage of the information content of accounting figures. However, whether the additional information content in the accrual components of earnings improves the internal performance measurement is an open empirical question. To shed light on this question, I examine the correlation between operating cash flows and earnings with firm's total shareholder returns. Using fixed firm effects regression methods for a large sample of German listed firms covering some 5,000 firm years, the analysis shows that generally operating cash flow and earnings are both positively correlated with total shareholder return. However, with increasing information asymmetry earnings become less correlated with the firm's stock market performance and operating cash flows dominate earnings in explaining total shareholder return (and vice versa). These results suggest that, the information content of accounting figures is only relevant in settings characterized by low information asymmetries and, thus, there is no one-size-fits-all performance measure for managerial accounting purposes.
Subjects:accounting figures
performance measures
total shareholder return
managerial accounting
JEL:G32
M21
M40
M46
Document Type:Working Paper
Appears in Collections:CEFS Working Paper Series, Center for Entrepreneurial and Financial Studies, Technische Universität München

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