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The Relative and Incremental Information Content of Cash Flows and Accruals: An Empirical Study on Oslo Stock Exchange

Haugen, Daniel Børresen; Meldal-Johnsen, Halfdan
Master thesis
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URI
https://hdl.handle.net/11250/2686878
Date
2020
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  • Master of Science [963]
Abstract
This study examines the relative and incremental information content of accruals

and cash flows based on Norwegian data. The motivation for the study is the lack

of conclusive evidence on the topic and that no information content study has been

conducted in a Norwegian context. We estimate the association between cumulative

abnormal returns and unexpected components of net income, working capital from

operations, cash flow from operations, cash flow after investments, and net cash

flow. Based on annual cross-sectional and pooled regressions from 2007 to 2018,

we find that the aggregate effect of cash flows has the highest information content

for companies listed on the Oslo Stock Exchange. Further, we find evidence

suggesting that both accruals – in particular earnings – and cash flows have

incremental information content. We observe the following ranking of the

performance measures: 1) cash flow from operations, 2) net income, 3) net cash

flow, 4) cash flow after investments, and 5) working capital from operations. Unlike

previous studies on the topic, we introduce control variables that are distinct for the

market. In this study, we control for industry, in particular oil companies, and

government ownership. We find some evidence suggesting that earnings are

relatively more important for government-owned firms.
Description
Masteroppgave(MSc) in Master of Science in Business, Major in Accounting and Business Control - Handelshøyskolen BI, 2020
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Handelshøyskolen BI

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