The Responsiveness of Share Price to Operating Cash Flow in Modern Corporate Bankruptcies

Abstract

Largay and Stickney (1980) was hugely consequential for the accounting and financial community as it demonstrated through the W. T. Grant bankruptcy the importance of operating cash flow to the firm. While there is no dispute about the result, their analysis is not statistical and relies primarily on graphical interpretation of the data. This paper employs a lagged correlation model to test the W. T. Grant data for the 10-year period before bankruptcy. The results of this paper confirm Largay and Stickney, not only as to the existence of a lagged association between OCF and share price but also as to the length of the lag.

Citation

Jackson, B. and Briley, J. (2015), "The Responsiveness of Share Price to Operating Cash Flow in Modern Corporate Bankruptcies", Overlaps of Private Sector with Public Sector around the Globe (Research in Finance, Vol. 31), Emerald Group Publishing Limited, Leeds, pp. 135-140. https://doi.org/10.1108/S0196-382120150000031006