Rountree, Brian Weston, James P. Allayannis, George
Abstract
This paper presents empirical evidence that cash-flow volatility is negatively valued by investors. The magnitude of the effect is substantial with a 1% increase in cash-flow volatility, resulting in approximately a 0.15% decrease in firm value. We show that this increase, however, is not associated with earnings smoothing resulting from managers' accrual estimates. Our results are consistent with a preference by the market for less volatile cash flows and suggest that managers' efforts to produce smooth financial statements add value, but only via the cash component of earnings.
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Volume (Year): 90 (2008) Issue (Month): 3 (December) Pages: 237-251 Download reference. The following formats are available: HTML
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