Flexibility in Cash Flow Classification Under IFRS: Determinants and Consequences

Gordon, Elizabeth A.; Henry, Elaine; Jørgensen, Bjørn N.; Linthicum, Cheryl L.

doi:10.2139/ssrn.2815123

Cited by 8 publications

(6 citation statements)

References 61 publications

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“…Studies documenting management of reported financial figures through real activities (Roychowdhury 2006, Bushee 1998, Baber et al 1991, Cohen et al 2008, Cohen and Zarowin 2010, Lemayian 2013, Levy and Shalev 2016 link potentially inefficient actions to achieving earnings goals. More closely related to our study is research documenting management of reported cash flows (e.g., Lee 2012, Gordon et al 2013, Brown and Caylor 2005. In particular, Lee (2012) investigates incentives for managers to manipulate operating cash flows (distress, debt near the investment-grade cutoff, existence of analysts' cash flow forecasts, high association between operating cash flows and stock returns) and documents that stronger incentives are correlated with more operating cash flow management.…”

Section: Introductionmentioning

confidence: 91%

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Factors Associated with the Year-End Decline in Working Capital

2017

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W orking capital is an important indicator of firm operational efficiency. All else being equal, lower levels signal greater efficiency. Managers are thus likely to be motivated to report lower levels of working capital at times of greater external attention. We find that working capital levels decrease in the fourth fiscal quarter significantly more than expected, conditional on seasonal changes in economic activity. The decrease subsequently reverses in the following first fiscal quarter. Evidence indicates that firms manage down year-end working capital through transactions that increase year-end operating cash flow and that firms spread this activity over all working capital accounts. Finally, the temporary decrease in year-end working capital is correlated with compensation benchmarks and analysts' annual cash flow forecasts. The temporary drop is also more pronounced for firms with industry dominance.

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Section: Introductionmentioning

confidence: 91%

“…Firms' manipulation of operating cash flow is directly investigated in recent studies, such as those by Lee (2012) and Gordon et al (2013), who show that firms manage reported cash flow levels when incentives to do so exist.…”

Section: Year-end Working Capital Managementmentioning

confidence: 99%

Factors Associated with the Year-End Decline in Working Capital

2017

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“…First, in Compustat, the variation in the number of missing items for the Statement of Cash Flows is marginal . Second, Compustat Global does not accurately report cash flow classification (Gordon et al 2017). Third, the Statement of Cash Flows was not formally considered as a separate financial statement in the EU until IFRS was mandatorily adopted in 2005 (see Directive 78/660/EEC).…”

Section: Measuring Dqmentioning

confidence: 99%

Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality*

Siciliano

Venkatachalam

Naranjo

et al. 2021

Contemporary Accting Res

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This study adopts a two‐step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. This approach helps address the identification challenge noted by prior research and offers direct evidence on the role of disclosure quality. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line item disclosure in financial statements. We find that IFRS‐adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long‐term investments on the balance sheet and greater disaggregation of depreciation, amortization, and nonoperating income items on the income statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Our evidence has implications for standard setters as they evaluate cost‐benefit trade‐offs when considering disclosure changes in the future.

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“…In addition, there was less regulatory scrutiny of annual reports in these earlier years, reducing the motivation to obfuscate negative disclosures. Therefore, 2002 has a more negative Tone Index (see Table 7 Panel accounting standards involves considerable judgement with the incentive and scope to make annual reports complex (Daske and Gebhardt 2006;Ball, Robin, and Wu 2003;Gordon, Henry, Jorgensen, and Linthicum, 2017). Lang and Stice-Lawrence (2015) find that Fog is higher under more oversight, which could also be driven by more complex disclosures.…”

Section: Hypothesis Testing: Association Between Readability and Tonementioning

confidence: 99%

Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation

Efretuei¹

2020

SSRN Journal

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In this study, I examine variations in the textual complexity of annual report narrative disclosures using the Fog Readability Index and Fin-Neg word list Tone Index given year and industry effects. I analyse accounting narrative Readability and Tone based on firm years, associations between the two narrative measures, and industry data. Tests of the relationship between Readability and Tone show that negative narratives have higher Readability scores, supporting the obfuscation hypothesis that bad news tends to be more difficult to read. A year analysis shows that the negative relationship between Readability and Tone increases in significance over time (2006)(2007)(2008)(2009)(2010)(2011). An industry analysis shows that the observed obfuscation tends to persist in basic materials; consumer services; financial; technology; and utilities industries. This study shows that considering the effect of variations between industry and firm years can inform annual report textual complexity research and associated empirical analyses.

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Flexibility in Cash Flow Classification Under IFRS: Determinants and Consequences

Cited by 8 publications

References 61 publications

Factors Associated with the Year-End Decline in Working Capital

Factors Associated with the Year-End Decline in Working Capital

Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality*

Year and Industry-level Accounting Narrative Analysis: Readability and Tone Variation

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