The Role of Earnings and its Components on Equity Valuation Evidence from Amman Stock Exchange

Bassam M. Abu-Abbas

Abstract


This paper examines whether current earnings and its components are value-relevant in predicting future earnings, cash flows, abnormal earnings or dividends. In addition, it examines the relative information content among net income, cash flows and accruals. Results from 112 companies traded on the Amman Stock Exchange during the period 1998 – 2003, provide insights in to the ability of current earnings and cash flows to predict future earnings, cash flows, abnormal earnings or dividends. First, the results show that current earnings and cash flows are value-relevant in predicting future earnings, cash flows, abnormal earnings or dividends. In contrast, current accruals are not value-relevant in predicting future earnings, cash flows, abnormal earnings or dividends. Second, the findings indicate that current earnings have a higher ability than current cash flows or accruals to predict future earnings, abnormal earnings or dividends.


Keywords


Earnings, Cash flows, Accruals, Dividends.

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