Cash flow components versus accrual components in predicting Saudi Share price

Abstract EN

This study attempts to compare the persistence levels of accruals components versus the persistent levels of cash flow components.

Many studies have researched the persistence levels of accruals components versus the persistent levels of cash flow components in predicting future share prices.

However, previous research has reported mixed results in this area as well as limited studies are available in some cash flow elements and accrual.

In Saudi Arabia, evidence of the persistence levels of accruals components versus the persistent levels of cash flow components is very limited.

Annual data used in this study were collected from the financial statements of 90 non-financial companies listed on the Stock Exchange of Saudi Arabia from 2007 to 2011.

A hypothesis was developed and regression analysis was used to test the hypothesized relationships during various economic conditions; pre-global financial crisis, during the global financial crisis and after the global financial crisis.

The regression results found that the accrual components are more persistent than the cash flow components in explaining the variations of the Saudi share price before, during and after the global financial crisis 2008-2009.

The results of this paper can be used as evidence to support the theory in financial analysis such as the free cash flow theory and the theory underlying the relationship between earnings and stock price.