Date of Award

Spring 1997

Document Type

Dissertation

Degree Name

Doctor of Business Administration (DBA)

Department

School of Accountancy

First Advisor

Thomas Phillips

Abstract

The purpose of this study was to attempt to determine the incremental information content of the cash and cash equivalents definition of funds. The cash and cash equivalents definition of funds is the mandated definition of funds for use in the preparation of a statement of cash flows. Prior to 1988, firms were able to use alternative definitions of funds; working capital was the most widely-used alternative definition.

In order to determine whether the cash and cash equivalents definition of funds has incremental information content, event analysis methodology was utilized to compare the market reaction to the release of financial statements by a sample of firms using the cash and cash equivalents definition with the market reaction to the release of financial statements of a sample of firms using the working capital definition of funds. The tests were conducted over the sample years from 1983 to 1987, and market reaction was measured in terms of both excess stock returns and excess trading volume. Trading volume was measured in two different ways: shares traded and percentage of outstanding shares traded.

The results of this study revealed that there was generally no significant market reaction measured as excess returns at the release of either sample's financial statements. When the market reaction was measured in volume, the results were mixed. When volume was measured in shares traded, excess volume on the day before the financial statements were filed with the SEC for the cash and cash equivalents sample statistically differed from zero at the.10 level (or better) for all five years of the study. The same result did not occur in the working capital sample tests nor did the results repeat in the cash and cash equivalents sample when volume was measured as a percentage of outstanding shares traded. These results may have occurred because of the greater scrutiny applied to larger firms and the heavier weighting given to them when excess volume is measured in shares.

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