Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Competing Indicators of Free Cash Flows and The Usefulness: Evidence from Palestine Exchange

Author(s): Rajeh Alawneh, Zahran Daraghma

This paper comes to examine the relative usefulness of two indicators of the free cash flows in explaining the value of corporations’ that listed on Palestine Exchange (PEX). The two competing indicators are Free Cash Flows to Firm (FCFF) and Free Cash Flows to Equity (FCFE). In addition to that, the paper aims at arranging the value relevance of the two competing variables of the free cash flows. In order to achieve the previous objectives, the study requires exploiting the accounting data of the listed corporations on the PEX during the period 2015 - 2019. Moreover, the study employs a variety of statistical procedures (descriptive statistics, Jarque-Bera test, correlation matrix, regression analysis, and Akaike info criterion for model selection). The sample of this paper consists of 18 industrial and service (9 industrial and 9 service) listed corporations on the PEX [90 firm-year]. The finding of this paper specifies that neither FCFF nor FCFE has a vital role in explaining company’s performance and its stock returns. Similarly, the findings are inconsistent with the theories of the free cash flows. This paper recommends the Palestine Exchange to regulate the obligatory disclosure about the indicators of the FCF in the annual report.

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