Abstract
This paper examines the effect of the changing presentation of cash flow information in SFAS No. 95 on securities valuation. The study shows that SFAS No. 95 provides benefits to the securities market from improved relationships between cash flow information and securities valuation. Results indicate that cash flows have incremental information content for market values beyond earnings after SFAS No. 95 became effective in 1988. Additionally, bid-ask spreads before and after SFAS No. 95 are examined. Bid-ask spread is found to decrease significantly between the period 1986–1987 and the period 1989–1990. Overall, our results suggest that SFAS No. 95 had an impact on the market microstructure, supporting regulators enactment of standards such as SFAS No. 95 intended to improve the quality and content of accounting information.
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