Accounting Reports Convey Both Cash-Flow News and Discount-Rate News

2014 ◽  
Author(s):  
Stephen H. Penman ◽  
Nir Yehuda
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Accounting Reports ◽  
Discount Rate News ◽  
Cash Flow News

scholarly journals Cash flow news, discount rate news, and momentum

2016 ◽  
Vol 72 ◽  
pp. 240-254 ◽  
Author(s):  
Umut Celiker ◽  
Nuri Volkan Kayacetin ◽  
Raman Kumar ◽  
Gokhan Sonaer
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Discount Rate News ◽  
Cash Flow News

scholarly journals Foreign Currency Returns and Systematic Risks

2014 ◽  
Vol 50 (1-2) ◽  
pp. 231-250 ◽  
Author(s):  
Victoria Atanasov ◽  
Thomas Nitschka
Keyword(s):  
Cash Flow ◽  
Foreign Currency ◽  
Common Source ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Cross Sectional ◽  
Asset Pricing Model ◽  
Systematic Risks ◽  
Discount Rate News ◽  
Cash Flow News

AbstractWe apply an empirical approximation of the intertemporal capital asset pricing model (ICAPM) to show that cross-sectional dispersion in currency returns can be rationalized by differences in currency excess returns’ sensitivities to the market return’s cash-flow news component. This finding echoes recent explanations of the value and growth stock market anomaly. The distinction between cash-flow news and discount-rate news is key to jointly explain average stock and currency returns. Our analysis reveals the presence of a common source of systematic risk in stock and foreign currency returns that is reflected in the market return’s cash-flow news component.

scholarly journals Dividend Growth, Cash Flow, and Discount Rate News

2012 ◽  
Vol 47 (5) ◽  
pp. 1003-1028 ◽  
Author(s):  
Ian Garrett ◽  
Richard Priestley
Keyword(s):  
Size Effect ◽  
Cross Section ◽  
Cash Flow ◽  
Stock Price ◽  
Relative Importance ◽  
Dividend Smoothing ◽  
Value Effect ◽  
Discount Rate News ◽  
Cash Flow News ◽  
Dividend Growth

AbstractUsing a new variable based on a model of dividend smoothing, we find that dividend growth is highly predictable and that cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns. However, they do not explain the value effect; this is explained by noise betas. We also find that the relative importance of cash flow news in explaining recent stock price run-ups and subsequent declines increases when cash flow news is estimated directly.

Who Reacts to News?

2019 ◽  
Vol 09 (01) ◽  
pp. 1940002
Author(s):  
Doina Chichernea ◽  
Collin Gilstrap ◽  
Kershen Huang ◽  
Alex Petkevich
Keyword(s):  
Cash Flow ◽  
Institutional Ownership ◽  
Expected Returns ◽  
Short Term ◽  
Firm Level ◽  
Related Information ◽  
Short Horizon ◽  
Discount Rate News ◽  
Cash Flow News

We show that the positive relation between firm-level cash-flow news and institutional ownership documented by [Cohen et al., Journal of Financial Economics 66, 409–462.] is mostly driven by short-horizon investors. Short-term institutions trade to incorporate cash-flow related information into prices and potentially reduce under-reaction to cash-flow news. In contrast, long-term institutions are more sensitive to discount-rate news, consistent with the idea that their strategy is to realize the long-term expected returns and that they care more about changes in their opportunity set. Our results support the premise that short- and long-horizon institutions are potentially trading with each other based on their opposing preferences for news.

scholarly journals Separating Information About Cash Flows from Information About Risk in Losses

2020 ◽  
Author(s):  
Bin Li
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Cash Flows ◽  
Expected Returns ◽  
Forecast Revisions ◽  
Future Earnings ◽  
Earnings Response Coefficient ◽  
Earnings Response ◽  
Prior Literature ◽  
Discount Rate News

Prior literature interprets the weak earnings response coefficient (ERC) of accounting losses as a manifestation either of lack of forward-looking information in losses or of market mispricing of losses. Based on return decomposition theory, I predict that losses contain information not only about future cash flows (i.e., cash flow news) but also, about risk (i.e., expected returns and discount rate news). However, these informational components have offsetting valuation effects, resulting in a muted ERC. Consistent with the prediction, I show that, after controlling for information about risk (mainly expected returns), the ERC of losses becomes statistically significant with more negative returns for larger losses when returns are measured either annually or around earnings announcements. Moreover, loss firms will continue to have poor future earnings and operating cash flows, and larger losses are associated with more negative analyst forecast revisions in the loss-reporting year. I also document that losses provide more negative cash flow information when they are not because of research and development expensing, when they trigger operational curtailments, and when they are less likely to reverse to profits. Further tests confirm the robustness of my findings to considering future return drifts/reversals, alternative proxies for expected returns and discount rate news, alternative test portfolios, and alternative model specifications. Overall, my paper provides new insights into the information content of losses. This paper was accepted by Suraj Srinivasan, accounting.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

DISCOUNT RATE VALUE AND CASH FLOW DEFINITION: A NEW RELATIONSHIP AND ITS IMPLICATIONS

2002 ◽  
Vol 47 (1) ◽  
pp. 60-74 ◽  
Author(s):  
AXEL PIERRU ◽  
ELISABETH FEUILLET-MIDRIER
Keyword(s):  
Cash Flow ◽  
Discount Rate
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