Is Cash Flow per Share Paternalism by U.S. Accounting Rule Makers Warranted? An Empirical Study

Abstract

The Financial Accounting Standards Board (FASB) prohibits the reporting of cash flow per share (CFPS) information from the financial statements in fear of undermining the importance of the earning per-share metric. The objective of our research is to understand the validity of this argument by examining the effects of cash flow per share information on investors’ judgments. We conducted a two by one experiment where we manipulate cash flow per share as the absence or presence of the statistic in the financial statements. Eighty-eight MBA students assumed the role of investors and participated in this study. We find that the cash flow per share information affects investors’ reliance on cash flow information, but does not affect participants’ performance evaluation. Our results are in support of including CFPS in the income statement as it may lead investors to pay more attention to cash flow information.