Do investing cash flows help in explaining future corporate performance?

Prior research in the finance area offers wide evidence of the impact of investments on corporate performance. Building on this evidence, this paper investigates whether financial statements, particularly the cash flow statement, provide users with relevant information on investment transactions. Us...

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Bibliographic Details
Published inRevista española de financiación y contabilidad Vol. 41; no. 154; pp. 185 - 208
Main Authors Rodríguez, M.a Luz Gómez, Muiño, Flora, Lamas, Fernando Ruiz
Format Journal Article
LanguageEnglish
Published Routledge 01.01.2012
Subjects
Cash flow
Corporate performance
Desempeño de la empresa
Flujo de efectivo
Inversión
Investment
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Summary:Prior research in the finance area offers wide evidence of the impact of investments on corporate performance. Building on this evidence, this paper investigates whether financial statements, particularly the cash flow statement, provide users with relevant information on investment transactions. Using a sample of UK companies we document two main facts. First, cash flow statements convey valuable information on corporate investments (i.e. investing cash flows) that help users in assessing future firm cash flows. Second, information on those investments that were not financed with cash is also relevant when assessing the future prospects of the firm, though it is not reflected in the face of the financial statements. Our results suggest that, even in the UK, where most investments are financed with cash, valuable information on investments is missed from the cash flow statement.
ISSN:0210-2412
2332-0753
DOI:10.1080/02102412.2012.10779722