The impact of Covid-19 pandemic on the value relevance of cash flows: evidence from banks
Abstract
Purpose
This paper is motivated by the ongoing debate on the value relevance of cash flow statement (CFS) between bank regulators, on one hand, and accounting standard setters, on the other hand. The importance and usefulness of cash flows during economic turmoil exacerbated by the Covid-19 pandemic has recently gained attention. Hence, this paper investigates the impact of Covid-19 pandemic on the value relevance of cash flows (CF) beyond accounting earnings and book equity.
Design/methodology/approach
A panel of 236 bank-year observations is examined for value relevance in emerging capital markets of Gulf Cooperation Council (GCC) countries. Using value relevance regression, operating and non-operating CF items are tested for value relevance beyond earnings and book value of equity during the periods 2018–2019 (pre-pandemic) and 2020–2021 (pandemic).
Findings
There is limited value relevance of CF beyond accounting earnings and the book value of equity. The distinction between operating and non-operating CF is not informative. However, the value relevance is significant during the pandemic, indicating that investors rely on CF for valuation purposes at times of uncertainty, corroborating further research on CF distress predictive ability.
Originality/value
This paper provides novel evidence on value relevance of CF and its superiority to accounting earnings and equity values during times of uncertainty. It extends a small body of research in the banking sector in emerging markets. Hence, it complements prior literature and has practical implications to accounting standard setters and bank regulators in emerging markets.
Keywords
Acknowledgements
The author is grateful to the valuable comments of the editor and anonymous reviewers as well as participants' comments on an earlier draft presented at the 2022 Finance Symposium.
Disclosure statement: No potential conflict of interest was reported by the author(s).
Corrigendum: It has come to the attention of the publisher that the Abou-El-Sood, H. (2023), “The impact of Covid-19 pandemic on the value relevance of cash flows: evidence from banks”, International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-06-2022-0902
The following errors have been corrected in the latest version of the published article:
In section 5 “2007 to 2019” should be 2018–2021.
In section 6.2 “(2007–2015)” should be (2018–2021).
In table 1 (Panel A) Row titled “OPACCit” : ‒0.02, ‒0.02, and ‒0.03 should be positive. Row titled “OTHOACCit”: ‒0.0 should be ‒0.01.
In Appendix 1 “Total” should be 60; where 7, 7, 10, and 18 correspond to Oman, Qatar, Saudi Arabia, and United Arab Emirates.
The author sincerely apologises for any inconvenience.
Citation
Abou-El-Sood, H. (2023), "The impact of Covid-19 pandemic on the value relevance of cash flows: evidence from banks", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-06-2022-0902
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited