The Relationship between Accrual-Based Values, Cash Based Values and Stock Prices

Husam Al-Deen Al-Khadash, Mohammad Issa Al-Abbadi

Abstract


This study examines the significance of the rate of return to equity as a ratio of accrual basis and the cash flow to equity as a ratio of cash basis in analysing the financial performance of the industrial public shareholding companies in Jordan. The study also examines the association between the accounting rate of return to equity, the cash flow to equity and the influence on stock market prices. Through this objective, the study aimed at examining whether the accounting rate of return (based on the accrual basis) or the cash flow (based on the cash basis) has more impact on companies stock prices.
The examination covered a sample of 26 Jordanian industrial public shareholding companies that are listed on the Amman Stock Exchange Market for the period 1993-2002. The suggested models have been tested for all companies.This provides the chance to examine the structural behavior among the tested variables. The study concluded that there is a significant relationship between both tested models, and revealed that the cash flow to equity is more related to stock prices in comparison with accounting rate of return to equity.

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