Accounting Earnings and Cash Flows as a Measure of Performance in Business“An Applied Study on Amman Stock Exchange”

M. F. Shbaitah, M. H. Abu Nassar

Abstract


This study attempts to compare accrual basis and cash basis via establishing an accrual basis model and two models for the cash basis. Furthermore, this study examines the role of accounting accruals on the ability of earnings to measure company performance. Based on Efficient Market Hypothesis (EMH), this study considers accrual and cash flow models as competing performance measures to reflect company performance.
A representative sample of Jordanian companies from the industrial and the service sectors, listed on Amman Stock Exchange, is used over the period 1989 – 2001.
Empirical results show that the accrual model outperforms the cash flow models. Several sensitivity analyses (like year by year and time series) have been conducted to check the robustness of the above results. This study shows also that the aggregate accounting accruals improve the ability of earnings to reflect company performance.

Keywords


Stock Returns, Accounting Accruals, Accrual Basis, Cash Basis, Company Performance

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