The predictive value of earnings, cash flows and accruals in the period surrounding the Asian financial crisis: Evidence from Hong Kong, Malaysia, Singapore and Thailand

Abstract

This paper examines the predictive value of earnings, operating cash flows and accruals in Hong Kong, Malaysia, Singapore and Thailand for the period 1994-2001. We also examine the impact of the Asian financial crisis of 1997 on the predictive power of the accounting performance measures. We regress future cash flows and future excess returns on earnings (or cash flows and accruals) for the periods 1994-1996 (pre-crisis period), 1997-1998 (crisis period) and 1999-2001 (post-crisis period). Our findings indicate that the accounting measures have explanatory power for 1-year ahead cash flows. Our analyses of 1-year ahead excess returns indicate that investors may have undervalued the accounting measures in the pre- and post-crisis periods, and overvalued the measures during the crisis period. © Blackwell Publishing Ltd. 2005.