Abstract
The purpose of this study is to investigate the effect of earnings stability on operating cash flows with emphasis on financial constraints. Evidence suggests that earnings stability has a positive and significant effect on operating cash flows, and financial constraints have a negative and significant effect on operating cash flows and also financial constraints do not have a significant interactive effect on the relationship between profit stability and operating cash flows. To measure operating cash flow, the cash flow from operating activity obtained through the cash flow statement is obtained by dividing the total assets of the company. The research is from 2012 to 2016 that a total of 121 companies active in various industries have formed the research sample. The method of the present research is descriptive-correlational in terms of applied purpose and post-event in terms of data collection method. Multivariate regression method has been used to test the research hypotheses. The independent variable in this study is profit stability and the dependent variable is operating cash flow and financial constraint as a moderating variable. The result is also supported by stakeholder theory. In general, the research findings show the important and prominent role of earnings stability in shaping the operating cash flow and its financial constraints.
Highlights
Information plays a vital role in economics and this can be seen in conditions of Adam Smith’s Theory of Indivisible Hand that is the first and well-known economic theory
Med values of operating cash flows and EPER obtained to 0.561 and 0.426, respectively indicating that a half of data are lower than this value while the other half is greater than this value
The objective of this study was to investigate the causal effect of financial constraint and EPER on operating cash flows in the firms listed in Tehran Stock Exchange
Summary
Information plays a vital role in economics and this can be seen in conditions of Adam Smith’s Theory of Indivisible Hand that is the first and well-known economic theory. Famous Article written by Hayek (1945), Efficient Market Theory of Fama (1970), and subsequent theories about efficient market can be named. Most of these theories are about the investors’ reactions to the information. Different quality levels and relevance rate of information leads to different reactions in the market. This is called the Earnings Response Coefficient (ERC). Earnings reaction includes the various market reactions to the earnings information (Ang, Chen, Goetzmann, & Phalippou, 2018; Atiase, Li, Supattarakul, & Tse, 2005; Meshki & Nourdideh, 2012; Shivakumar, 2010)
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