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The use of earnings and cash flows in investment decisions in the U.S. and Mexico: Experimental Evidence
Jose E. Miranda - Lopez,
Tecnologico De Monterrey Campus Guadalajara
Linda M. Nichols, Texas Tech University
ABSTRACT. The present study investigates which accounting performance measure, earnings or cash flows is used more on average in the United States and Mexico in investment decisions. In addition, according to economic theory investors and other decision makers should adjust their decisions depending on the persistence of each accounting measure so they can maximize their profits. However, it has been shown that human cognitive limitations lead individual investors to be boundedly rational. Individual investors also suffer from functional fixation. Therefore, the present study investigates also if participants in the United States and Mexico fixate on one accounting performance measure even when it is cognitively easier for them to adjust their decision.
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