The Relative and Incremental Information Content of Earnings and Operating Cash Flows: Empirical Evidence from Middle East, the Case of Palestine

Abstract

This paper presents an investigation of the listed companies in Palestine Security Exchange (PSE). This investigation examines the relative and incremental information content of earnings (EPS) and operating cash flows (OCF). In addition, this paper aims to test the impact of losses on the information content of EPS and OCF. This study uses the accounting data of the companies that listed in the PSE from 2004-2008. Furthermore, it employs a variety of statistical procedures (descriptive analysis, correlation test, regression analysis, and Akaike's information criterion (AIC) and Vuong’s test for model selection). Also, 23 Palestinian corporations were selected for testing the hypotheses. The results of this paper indicate the existence of value relevance of earnings whereas there is no sufficient evidence to confirm that operating cash flows has information content. Moreover, any firm that achieves profit will have a positive impact on the value relevance on its earnings and operating cash flows.