The Role of Company-Disclosed Operating Cash Flow Information in Improving Inter-Country Comparability of Earnings

• In Event: IFRS and Accounting Quality

Abstract

We examine the change in comparability of the return-earnings relation between US firms and firms from 15 international countries after company-disclosed operating cash flow (OCF) information was available for the international firms. We find that the relation between annual stock returns and disaggregated earnings became stronger for international firms after the availability of company-disclosed OCF information, making their return-earnings relation similar to that of the matching US firms. Further, the mapping process of disaggregated earnings into annual stock returns became more similar to that of US firms’ earnings. Our results suggest that a standardized form of income statement with common elements would further improve comparability of earnings generated by different accounting standards.

Authors

• Maria T Caban-Garcia, University of South Florida St. Petersburg

• Heeick Choi, University at Buffalo, SUNY

• Myungsun Kim, University at Buffalo, SUNY