Relationship between Earnings Response Coefficient and Free Cash Flow and State Ownership: Evidence in Brazil
DOI:
https://doi.org/10.17524/repec.v18i2.3330Keywords:
Fluxo de Caixa Livre; Coeficiente de Resposta de Ganhos (ERC); Propriedade Estatal; Informatividade do Preço das Ações.Abstract
Objective: This study analyzes the impact of free cash flow and state ownership on the Earnings Response Coefficient (ERC) in the Brazilian capital market.
Method: A sample of 210 companies from 2011 to 2019 was obtained from the Economatica database, with the Earnings Response Coefficient being the dependent variable, free cash flow and state control being the main independent variables, in addition to control variables, which were analyzed using panel data regression with the Pooled Ordinary Least Squares (POLS) method.
Results: The results show that free cash flow accounting information has relevant marginal implications on the earning response coefficient and state ownership. The interaction between free cash flow and state ownership reinforces that increases in unexpected earnings are due to the presence of these two elements.
Contributions: The findings contribute to the literature on emerging markets by reporting that free cash flow (accounting data) and state monitoring (governance aspect) are informative items for the earnings response coefficient. Consequently, this can improve investors’ financial analysis and company evaluation process and make managers pay attention to the effects of the decision to maintain cash surpluses.
Therefore, it allows these stakeholders to understand that the existence of available resources (free cash flow) in a business indicates prospects of future earnings.
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