Revisiting Measurement Error in Surrogate Measures of Operating Cash Flows: Have We Solved the Problem?

Chen, Ciao-Wei; Melessa, Sam; Mergenthaler, Richard

doi:10.2139/ssrn.3075461

Cited by 6 publications

(6 citation statements)

References 31 publications

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“…Therefore, we also analyze the robustness of our results to (1) using an alternative definition of accruals and cash flows, which mitigates the potential measurement errors arising from using the balance sheet approach (Chen et al. [2020]) and (2) limiting our sample to the post‐1987 years, when cash flow statement data are available.…”

Section: Methodsmentioning

confidence: 99%

Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association

Green¹,

Louis

Sani

2022

J of Accounting Research

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We provide evidence that the documented weakening of the accrual-cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible-intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially

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Section: Methodsmentioning

confidence: 99%

Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association

Green¹,

Louis

Sani

2022

J of Accounting Research

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“…Several studies document that earnings are better than current cash flows in predicting future cash flows (e.g., Brooks, 1982;Greenberg et al, 1986;Lorek and Willinger, 1996;Dechow et al, 1998;Kim and Kross, 2005;Nam et al, 2012), while other studies document that cash flows are better (e.g., Bowen et al, 1986;Finger, 1994;Burgstahler et al,1998;Subramanyam and Venkatachalam, 2007;Lorek and Willinger, 2009;Chen et al, 2017;Nallareddy, Sethuraman, and Venkatachalam, 2018). In addition, Nallareddy, Sethuraman, and Venkatachalam (2018) find that the ability of earnings to predict future cash flows is increasing over the period 1989-2015.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

“…The findings on the relative predictive abilities of earnings and cash flows are mixed. Several studies document that earnings are better than current cash flows in predicting future cash flows (e.g., Dechow et al, 1998;Kim and Kross, 2005;Nam et al, 2012), while others document that cash flows are better (e.g., Subramanyam and Venkatachalam, 2007;Chen et al, 2017). In addition, Nallareddy, Sethuraman, and Venkatachalam (2018) find that the ability of earnings to predict future cash flows is increasing over the period 1989-2015, and that this trend is attributable to the increasing predictive ability of cash flows rather than accruals.…”

Section: Introductionmentioning

confidence: 99%

The Role of Accruals and Cash Flows in Forecasting GDP Growth

Froymovich¹

2020

Preprint

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“…(Nallareddy et al, 2018). In particular, several studies document that earnings are better than current cash flows in predicting future cash flows (e.g., Greenberg et al 1986 ;Dechow et al, 1998;Kim and Kross 2005;Nam et al, 2012;Arnedo et al, 2012), while other studies document the opposite (e.g., Bowen et al, 1986;Efayena 2015;Chen et al, 2017).…”

Section: Introductionmentioning

confidence: 99%

الأرباح مقابل التدفقات النقدیة فی التنبؤ بالتدفقات النقدیة المستقبلیة دلیل من الشرکات المصریة والسعودیة(باللغة الإنجلیزیة)

الشرقاوي¹

2021

مجلة الاسکندریة للبحوث المحاسبیة

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This study examines the role of accrual based earnings derived from accrual accounting basis in comparison with cash flows in the prediction of future operating cash flows of quoted non-financial companies in Egypt and Saudi Arabia . Using a sample of 55 Egyptian companies and 35 Saudi companies over a period of 5 years (2015 -2019) and employing the OLS regression analysis, the results suggest that both earnings and cash flows have predictive ability in predicting future operating cash flows in both countries. However,the results show that cash flows are a better predictor of future operating cash flows than earnings in both countries. Our study findings are in contrast to the assertion of Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) that earnings are a better predictor of future cash flows.

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Revisiting Measurement Error in Surrogate Measures of Operating Cash Flows: Have We Solved the Problem?

Cited by 6 publications

References 31 publications

Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association

Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association

The Role of Accruals and Cash Flows in Forecasting GDP Growth

الأرباح مقابل التدفقات النقدیة فی التنبؤ بالتدفقات النقدیة المستقبلیة دلیل من الشرکات المصریة والسعودیة(باللغة الإنجلیزیة)

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