Earnings Versus Cash Flow: The Information Provided About Changes In Company Liquidity

Abstract

Recent research has examined the use of earnings versus cash flow in such areas as explaining abnormal security returns, predicting corporate bankruptcy, and predicting future company cash flow. This study extends prior research on the information provided by earnings and cash flow to the area of explaining changes in company liquidity. Univariate and multivariate regressions are used to examine the relationships between annual changes in the accounting flow variables and changes in liquidity.