Abstract
Financial statement information is useful for investors to predict the future investment returns, in turn the fact that capital markets corresponds with such financial information, accordingly (Merton, 1987). Regardless of the current good news or bad news of a company extracted from financial statements, it can also assist investors to anticipate future firm financial and market performance. Financial statements are highly informative surrogate and also regarded as the most transparent, accurate, and persistent disclosure vehicle outside. It can therefore convey a lot of information to decision makers. Furthermore, financial statement is still useful information even though it does not directly provide cash flow information (Kim and Kross, 2005; Ball and Shivakumar, 2006), implying that those guys realise income statement and balance sheet information can delivery certain important message to external investors. The difference between the net income and operating cash flow is the accrual. Financial statements are provided in accrual basis which seemingly is useful for decision makers. Dechow (1994) provides consistent evidence that the net income is more explaining the share movement than operating cash flow and net cash flow. Decision makers would update their subjective investment return predictions when new information releases (SFAC 1; IASB Framework; CICA handbook). The extent of informativeness of the financial statements depends on mainly both relevance and reliability drivers (SFAC 2), both of which are critical factors for the capital markets operating in a more efficiently and effectively manner.
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