Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960460 | Journal of Financial Economics | 2008 | 15 Pages |
Abstract
This paper presents empirical evidence that cash-flow volatility is negatively valued by investors. The magnitude of the effect is substantial with a 1% increase in cash-flow volatility, resulting in approximately a 0.15% decrease in firm value. We show that this increase, however, is not associated with earnings smoothing resulting from managers’ accrual estimates. Our results are consistent with a preference by the market for less volatile cash flows and suggest that managers’ efforts to produce smooth financial statements add value, but only via the cash component of earnings.
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Accounting
Authors
Brian Rountree, James P. Weston, George Allayannis,