Incremental Information Content of Cash Flows Versus Funds from Operations and Earnings: Empirical Results from French Companies

Abstract

Abstract: The purpose of our study is to examine the information content of cash flows versus funds from operations and earnings in the French context. By applying two methodologies relating to linear and nonlinear models, our work analyzes the capacity of these accounting measures to explain stock returns of French listed companies in the SBF120 index. Our results relating to linear models show that cash flows and funds from operations have incremental information content while nonlinear models note that these accounting measures have incremental information content only in the case of extreme variations. In addition, the results note that earnings have incremental information content in the case of moderate variations. One can infer that market participants in French context use and appreciate information contained in cash flows to evaluate firms’ performances especially when they show extremes variations.