ABSTRACT
This chapter explores the generality of Wilson's finding and to assess alternative economic arguments that would manifest themselves as a 'preference' for cash flows over current accruals. It also assesses the generality and robustness of Wilson's result by conducting the same tests over 32 quarters using a largely independent sample of firms. The chapter discusses prior research and outlines reasons why the valuation implications of cash flows and accruals might differ, describes the present data and applies the tests of Wilson to the data. It also tests more contextual models of the security price implications of cash flows and accruals. The author approach was to attempt to confirm one simple relation observed in prior research, and then to examine progressively more contextual models of the valuation implications of cash flows and accruals. He considered a model of the operating cycle of the firm, in order to identify what valuation-relevant signals might be conveyed by information about current accruals.
