Cash flow and security valuation: An empirical analysis of financial statement accounting earning models on security returns of Japanese Keiretsu firms

The Japanese equity market is the second largest in the world. In today's global economy, virtually all fund managers worldwide have holdings in Japanese capital markets. Even with Japan's premier status in global capital markets and prominence in international financial affairs, little empirical research exists which links security returns of Japanese firms with fundamental accounting variables. Moreover, extant research fails to address the impact of culture on firm performance.; This research extends empirical literature on three fronts: (1) economic impact of the Keiretsu, (2) association between fundamental accounting variables and security returns and (3) cultural influence upon accounting. This was done by using data on 100 Japanese firms listed on the Tokyo Stock Exchange. The research evaluated whether fundamental accounting variables of firms that are part of Japanese groups (keiretsu) significantly influence the firms security returns. It is hypothesized that various financial accounting variables (i.e. cash flow, book to market etc.) significantly influence Japanese keiretsu firms' security returns. Results were examined in the context of Japanese culture. The empirical results from this analysis reject the null hypothesis that keiretsu affiliation significantly affects a firm's return. The study further suggests that the degree, to which accounting variables influence security valuation, varies little, based upon a firm's affiliation with Japanese groups.