THE INCREMENTAL INFORMATION-CONTENT OF CASH-FLOW COMPONENTS

This study examines whether components of operating, financing, and investing cash flows are differentially associated with annual security returns, as predicted by theoretical models in finance and economics. The results of the study indicate that disaggregation of net income into cash from operations and accruals does not contribute significantly to the security returns beyond the contribution of net income alone. However, further disaggregation of financing and operating cash flows into their components significantly improves the degree of association as predicted by theory. In contrast, we find no evidence of differential associations across components of investing cash flows. © 1990.