Abstract:

We propose and test empirically the role of financial information, namely earnings and cash flows in France. The dataset consists of more than 1000 French firm-year observations. Regression analysis is undertaken to test the major research hypotheses. The major conclusions drawn from the empirical results are summarized as follows. First, results indicate that indeed both earnings and cash flows are taken into consideration by French investors in their investment decisions. Second, given cash flows, results show that earnings are always very important to investors and financial analysts for investment purposes. However, results reveal that investors in France place much more attention to earnings and less attention to cash flows and that earnings in France are valued more than earnings in other Anglo-saxon countries. Moreover, results show that investors pay more attention to longer-run earnings and cash flows rather than to shorter-run financial information.
In summary, the evidence provided in this study supports that indeed there are substantial differences in the way investors and financial analysts perceive financial information such as earnings and cash flows in France. The results of this study should be of great importance to the major stakeholders such as investors, creditors, financial analysts, especially after the latest financial scandals and collapses of giant organizations worldwide. Furthermore, these results support that fundamental analysis does play a very important role in the capital markets and it should be taken more seriously into consideration by the stakeholders for investing, credit, financing and valuation analysis purposes.