Discussion of 'The Incremental Information Content of Accruals: Evidence Based on the Exponential Smoothing of Levels and Trends in Pre-Tax Earnings, Funds Flow and Cash Flow.' (response to Stuart McLeay, John Kassab and Mahmoud Helan in this issue, p. 1147)

Article Abstract:

A comparative analysis was done between the methodologies used in a recent study on incremental information content of accruals and the approaches used in previous studies. The methodologies used in the recent study were interesting although they posed advantages and disadvantages in understanding incremental information of accruals. Furthermore, the findings of the recent study could be the springboard for further analyses on incremental information beyond earnings and other variables of corporate funds and cash flows.

Accrual Accounting, Profits, Accrual basis accounting, Corporate profits

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An empirical study of the information content of accounting earnings, funds flows and cash flows in the UK

Article Abstract:

A study was conducted on the information held by funds and cash flows and accounting earnings in UK companies. A model was developed which simulated the relationship between the three performance measures while excluding the earnings capitalization asssumption. Results showed that the performance measures can explain individual returns and possess incremental information content.

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The incremental information content of earnings, funds flow and cash flow: the UK evidence

Article Abstract:

A study was conducted on the incremental information content of three performance measures in UK companies: funds flow, earnings and cash flow. Time-varying parameters and a non-linear specification were used to improve the assessment of information content. Results showed that the performance measures can explain individual returns and possess incremental information content.

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