| Summary: | 碩士 === 國立成功大學 === 會計學系碩博士班 === 96 === The purpose of this research is mainly to reinspect the relative importance of earnings (EARN) and operating cash flows (OCF) in equity valuation. In the past, the researcher mostly use stock returns (Dechow 1994) or future operating cash flows (Barth et al.2001) as a dependent variable, but we use ex post intrinsic value of equity as the criterion for comparison. We determine ex post intrinsic value of equity by discounting future dividends over a three-year horizon and market price at the end of the horizon. The advantage of the ex post intrinsic value measure over stock returns is that it is not contaminated by the stock market’s fixation on reported earnings (Sloan 1996). Moreover, using ex post intrinsic value of equity as the criterion is superior than using operating cash flows, because the former better reflects the magnitude, timing , and uncertainty of investors’ future cash flows (SFAC No.1, FASB 1978).
The study takes Subramanyam and Venkatachalam(2007)’s research as a construction, and selects listed company as the sample for the period 1993-2002 , amounts to 1,070 firm-years observation representing 107 distinct firms. We use regression analysis of ordinary least squares method, the regression coefficient test , and Vuong’s Z-statistic to examine the relative explanatory power of earnings and operating cash flows for ex post intrinsic value of equity.
This findings prove that earnings surpasses operating cash flows in explaining ex post intrinsic value , the evidence supports FASB’s assertion that accrual based earnings is superior to cash flows in providing information about users’ future cash flows (SFAC No.1, FASB 1978, para.44) and the Taiwanese Statement of Financial Accounting Standards (SFAS) NO.1 statement that earnings is usually as the operating performance index or as the foundation of others measurements (eg. investment return rate or earnings per share) .
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