Causality between Cash Flow and Earnings: Evidence from Tehran (Iran) Stock Exchange

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Authors: Nasseri, A., Sayyadi, M., Yazdifar, H., Eskandari, R. and Albahloul, M.

http://eprints.bournemouth.ac.uk/33707/

Journal: Journal of Emerging Market Finance

Volume: 17

Issue: 2

Pages: 210-228

eISSN: 0973-0710

ISSN: 0972-6527

DOI: 10.1177/0972652718776860

© 2018, 2018 Institute of Financial Management and Research. This article employs data from 155 companies from 27 different industries listed on the Tehran Stock Exchange (TSE) for the period from 2000 to 2009 to examine the direction of causality between cash flow and earnings after taking consideration of stationarity and co-integration. The results indicate that there is a bidirectional causal relationship between cash flow and earnings at the level of all individual companies, so that cash flow variables caused earning variables and vice versa. However, at the level of industrial sectors, causality exists only between earning before interest and taxation (EBIT) and cash flow from operating activities (CFOA).

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