DO STOCK-PRICES FULLY REFLECT INFORMATION IN ACCRUALS AND CASH FLOWS ABOUT FUTURE EARNINGS

This paper investigates whether stock prices reflect information about future earnings contained in the accrual and cash flow components of current earnings, The extent to which current earnings performance per sists into the future is shown to depend on the relative magnitudes of the cash and accrual components of current earnings. However, stock p rices are found to act as if investors ''fixate'' on earnings, failing to reflect fully information contained in the accrual and cash flow c omponents of current earnings until that information impacts future ea rnings.