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Business and Research Method

Do Cash Flows have Impact Toward

the Stock Price in Access,
Competitive and Efficient (ACE)
Dr. Devika Nadarajah


Bursa Malaysia is a Fama-efficient market,

where the share prices will be significantly
affected by disclosure of account earnings.

Bursa Malaysia has operated on two listing

board which are the Main Market and ACE
Market since year 2009.

Problem statement

Insufficient of cash flow may lead to the

financial risk toward the firms.

Cheng, Shamsher and Annuar (2013) stated

that the financial risks are the variables that
significantly affected the share prices for US

However, disclosure of cash flow statement for

several years but the impact toward share
prices is still inconclusive.

Significance of study

There is no evidence to suggest whether cash

flow statement able to be used to predict

This study is to identify whether the

information on cash flows have any impact
towards the stock prices in ACE market.

Hence, research is to identify whether cash flow

is useful in forecasting the returns of stock.

Research question

Does a high level of aggregate accruals induce

overvaluation of the entire stock market?

How the market liquidity affect asset prices and


Is there a relationship between cash flow and

stock prices?

Can investor use the cash flow volatility to

predict returns?

Literature summary / gap

According to Ali (1994), cash flows have no

incremental information value beyond the working
capital and earnings.

In contrast, Cheng, Chao and Scharfer (1996) shown

that both the earnings and cash flows from
operation have a significant incremental information

In the study of Paresh and Joakim (2014) shown that

the cash flow and cash flow volatility are
significantly correlated with returns.

Theoretical framework

This research is to identify whether changes in

cash flows have the informational content.

In addition, it is also study whether cash flows have

the incremental informational content beyond
accounting earnings data in relation to company
share prices.

Research design

The data will be tested with descriptive statistic and regression

analysis for cumulative abnormal return (CAR), standardized
unexpected earnings (SUE) and standardized unexpected cash flow
from operation (SUCFO).

The hypothesis in this study is changes in cash flows have

information content beyond earnings.

H1: Cash flows have no informational content

H2: Cash flows have no incremental informational content beyond
accounting earnings data in relation to company share prices.

The null will be accepted if there is no significant relation between

stock price changes and unexpected cash flows changes but
significant relation between stock price changes and unexpected
earnings changes.

Plan for data analysis


The data set was made from the daily closing prices and
earnings/cash flow information through:
Bursa Malaysia Securities Clearing Sdn Bhd
Bursa Malaysia Annual Company Handbooks
Investors Digests
KLSE Daily Diary
Bursa Malaysia Library

30 companies chosen should be local companies and Malaysiandomiciled from ACE market.

The stock price will be converted into daily and monthly return
and scrutinized for error by using filter test

Pilot study results

Limitation, recommendation,

Stock returns are significantly affected by the earnings of

the company and portfolio levels over long window

Hence, earnings have the incremental

content beyond cash flow in ACE market.

However, during the short window test, investors will

value the share based on earnings and cash flow

Therefore, cash flow does have incremental information

content beyond earnings during the short window.


Ali, A. (1994). The Incremental Informational Content of Earnings,
Working Capital from Operations, and Cash Flows. Journal of
Accounting Research 32(1): 61-74.
Cheng C. S. A., Chao S. L. & Schaefer T. F. (1996). Earnings
Permanence and the Incremental Information Content of Cash
Flows from Operations. Journal of Accounting Research, 34 (1),
Cheng, F. F., Shamsher, M., & Nassir, A. (2013). Effect of Risks on
Earnings and the US Bank Share Valuation.Pertanika Journal Social
Sciences & Humanities 21(S): 19-30.
Paresh K. N. & Joakim W. (2014). Does cash Flow Predict Returns?
International Review of Financial Analysis 35: 230-236