Decision usefulness of the positive and negative operating cash flows: A mathematical approach

Document Type : Research Paper


Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran


The principal goal of this article is to investigate the effect of operating cash flow on decision-making considering the variables of the financial statements in the listed companies on the Iranian stock exchange. From the viewpoint of accounting standards, information content is applied to the particulars that will result in the information presented within the financial report being useful in the decision-making. The amount of data content for accounting for making a useful decision was evaluated in this article using the Ohlson model (1995) [35]. To realize the research objective, financial reports from 167 enterprises were accepted/listed on the Tehran Stock Exchange between 2011 and 2020. In addition, the research hypothesis was tested by applying multiple regression models with mixed data. The results show that the variable “operating cash flow” has a significant influence on the relationship between earnings per share, the book value of the share, and the stock price. This matter is in line with the information content theory. In other words, operating cash flow includes information content and will lead to an improvement in effective decision-making.


[1] A. Aflatooni, The influence of company growth on the relationship between market value, book value, and earnings,
J. Financ. Account. Audit. Res. 8 (2016), no. 31, 1–21.
[2] E. Amir, T.S. Harris and E.K. Venuti, A comparison of the value-relevance of US versus non-US GAAP accounting
measures using form 20-F reconciliations, J. Account. Res. 31 (1993), 230–264.
[3] K. Azadi, H.A. Mohammadlou, M.J. Tasadi Kari and H. Khedmatgozar, The readability effect of financial statements on stock price risk and shareholder behavior, J. Financ. Account. Knowledge 8 (2021), no. 28, 121–144.
[4] R. Ball and P. Brown, An empirical evaluation of accounting income mumbers, J. Account. Res. 6 (1968), 103–126.
[5] B. Bani Mahd and S.A. Ahmadi, A review on the usefulness of audit reports in market capital, J. Account.
Knowledge 2 (2013), no. 6, 13–30.
[6] A.A. Bandarian, M.R. Bandarian, S. Bozorgmehrian and F. Maghsoodi, The influence of corporate internet quality
reporting and cooperate characteristics on the content information of equity capital, J. Financ. Account. Audit.
Res. 11 (2019), no. 43, 219–245.[7] B. Bani Mahd and G. Rahman Nejad, Valuable content of dividends in companies, J. Financ. Account. Audit.
Res. 9 (2017), no. 33, 17–28.
[8] W.H. Beaver, The information Content of Annual Earnings Announcements, J. Account. Res. 6 (1968), 67–92.
[9] K. Chen, H.K. Chen, L.H. Hong and Y. wang, Stock market valustion of R&D expenditurse-the role corporate
governance, Pacific-Basin Finance J. 31 (2015), 78–94.
[10] J.A. Christensen and J.S. Demski, Accounting theory, Boston, MA: McGraw-Hill/ Irwin, 2003.
[11] M. Davern, G. Nikole, H. Dean and P. MatthEew, Is financial reporting still useful?, Australian Evidence, J.
Account. Finance Bus. Stud. 55 (2019), no. 1, 237–272.
[12] H. Didar and S. Vakili, Information content of consolidated versus parent company financial statements with
emphasis on the role of international financial reporting standards. Evidence from the two capital markets (Iran
and Singapore), J. Empirical Res. Account. 6 (2017), no. 4, 25–46.
[13] H. Etemadi and M. Saeedi, The influence of investment in capital assets on the relationship between stock current
value, book value and earnings per share, Journal of Financ. Knowledge Secur. Anal. 6 (2013), no. 4, 45–61.
[14] H. Fakhari and Y. Rezaei Pitenoei, A model for measuring cooperate information setting, Quart. J. Financ.
Account. 9 (2017), no. 39, 121–147.
[15] A. Farhangian and F. Heydarpoor, The impact of information content quality on the operating cash flow, J. Empir.
Res. Account. 9 (2019), no. 32, 121–141.
[16] D. Farid and M. Ghadak Forooshan, Asset management and relevance of accounting information, J. Financ.
Account. Audit. Res. 11 (2019), no. 44, 79–100.
[17] G.A. Feltham and J.A. Ohlson, Valuation and clean surplus accounting for operating and financial activities,
Contemp. Account. Res. 11 (1995), no. 2, 689–731.
[18] Ø. Gjerde, K. Knivsfla and F. Sættem, The value relevance of financial reporting in Norway 1965—2004, Scand.
J. Manag. 27 (2011), 113–125.
[19] B. Graham and D.L. Dodd, Security analysis, Columbia Business School, 1934.
[20] M. Hayati, Y. Urniwati and R. Putra, The effect of international capital to value relevance of accounting information based on PSAK convergence, Proc. Soc. Behav. Sci. 21 (2016), no. 1, 125–153.
[21] R. Hejazi and S. Meyhami, Survey adoption of fair value accounting standards and its impact on accounting profit,
J. Empir. Res. Account. 6 (2017), no. 4, 127–150.
[22] J. Heo and J. Yong, Stock price prediction based on financial statements using SVM, Int. J. Hybrid Inf. Technol.
9 (2016), no. 2, 57–66.
[23] J. Kangaravi, S. Mansoor Fard and M. Motavassel, The impact of operating cash flows on financial leverage
adjustments in firms listed on Tehran Stock Exchange (TSE), J. Financ. Manag. Strategy 2 (2014), no. 1, 93–75.
[24] A. Khajepoor and D. Gorjizadeh, A review on the relationship between accruals, operating cash flow, and book
value with market value of stock, J. Ind. Strategic Manag. 9 (2012), 1–15.
[25] A. Khodamipour and A. Torkzadeh, Taxation and financial reporting and the relevance of accounting information,
J. Financ. Account. 3 (2011), no. 9, 127–145.
[26] V. Khodadadi, H. Farazmand and S. Shibe, A review of valuation model based on non-normal earnings (Olsen)
from the viewpoint of macroeconomics using the generalized method of moments (GMM), J. Financ. Account.
5§(2013), no. 3, 41–58.
[27] J. Lee and E. Kim, Foreign monitoring and predictability of future cash flow, Sustain. 11 (2019), no. 18, 4832.
[28] YU. Liu, and S. Lee, Market responses to cash dividends distributed from capital reserves, Finance Res. Lett. 46
(2022), 102389.
[29] M. Mironiuc, M. Carp and I.C. Chersan, The relevance of financial reporting on the performance of quoted
Romanian Companies in the context of adopting the IFRS, Proc. Econ. Financ. 20 (2015), no. 2, 404–413.[30] M. Moradi and S. Hosein Zadeh, The role of corporate governance in firm’s financial distress: pre- and postinternal controls instruction, J. Financ. Account. 9 (2017), no. 3, 67–89.
[31] MJ. Mulenga, International financial reporting standards’ adoption and value relevance of accounting information:
a brief literature review, Int. J. Econ. Commerce Manag. 4 (2016), no. 6.
[32] F. Nasirzadeh and F. Karimipoor, A review on the performance of Olsen-Feltham valuation model in companies
listen on Tehran Stock Exchange, J. Account. Knowledge 2 (2011), no. 7, 141–160.
[33] H. Nikoomaram, M. Taghavi and H. Ahmadzadeh, Economic consequences of accounting information quality
focused on earnings persistence, J. Account. 21 (2014), 1–16.
[34] W. Nyamute, M. Oloko and J. Lishenga, The effect of investment style on portfolio performance: evidence from
the Nairobi securities exchange, International Journal of Multidiscip. Res. Dev. 2 (2015), no. 5, 552–554.
[35] J. Ohlson, Earnings, book values, and dividends in equity valuation, Contemp. Account. Res. 11 (1995), no. 2,
[36] E.A. Osadchy, E.M. Akhmetshin, E.F. Amirova, T.N. Bochkareva, Y. Gazizyanova and A.V. Yumashev, Financial
statements of a company as an information base for decision making in a transforming economy, Eur. Res. Stud.
J. 21 (2018), no. 2, 339–350.
[37] R.P.G.C.A. Parsons and J. Shen, Global relation between financial distress and equity the review of financial
studies, Rev. Financ. Stud. 10 (2017).
[38] S.H. Penman, Financial statement analysis and security valuation, McGraw-Hill/Irwin, New York, 2013.
[39] O. Poorheydari, G. Amiri and M. Safajoo, Analysis of the relationship between earnings per share and book value
with the stock value of companies listed on Tehran Stock Exchange, J. Account. Audit. Rev. §12 (2005), no. 42,
[40] F. Rahnamarodposhti and A.K. Salehi, Financial and accounting articles and theories (including theories, hypotheses, models, techniques, and tools, Ashk Zar Press, 2nd edition, Tehran, 2010.
[41] J.F. Ross, The information content of accounting reports: an information theory perspective, Inf. 7 (2016), no. 3,
[42] A. Saidi and E. Qadiri, Examining the relevance of accounting profit, book value and operating cash flow and
investment in price-based valuation models, Account. Audit. Stud. 14 (2006), no. 50, 47–64.
[43] H. Sami and H. Zhou, A comparison of value relevance of accounting information in different segments of the
Chinese Stock Market, Int. J. Account. 39 (2004), no. 4, 403–427.
[44] W. Scott, Financial accounting theory, Fifth Edition, Prentice Hall, Canada, 2009.
[45] A. Shuja’a and A. Hiasat, Stock price and cost of debt reaction to c changes in cash flow from operation, PhD
diss., Instituto Superior de Economia e Gest˜ao, 2020.
[46] M. Soleymani Mareshk, A. Hashemi and S. Samadi, Analysis of the application of accounting information in style
investing, Account. Audit. Res. 46 (2020), 97–112.
[47] Z.L. Swanson and G.D. Moyes, Supply and demand of information influencing firm valuation, Working paper,
University of Central Oklahoma, 2020.
[48] R. Tehrani, G. Talebnia and S. Jalili, The influence of accounting and non-accounting data on the investing
decisions of traders within Tehran Stock Exchange, J. Account. Res. 8 (2006), no. 21, 27–46.
[49] H.J. Turtle and K. Wang, The value in fundamental accounting information, J. Financ. Res. 40 (2017), no. 1,
Volume 13, Issue 2
July 2022
Pages 3037-3048
  • Receive Date: 01 November 2021
  • Revise Date: 01 February 2022
  • Accept Date: 09 February 2022