Work

The role of accounting accruals for the prediction of future cash flows: evidence from Spain

Year: 2011

Type: article

Abstract: The aim of this study is to determine whether accruals have information value beyond that provided by isolated current cash flows for the prediction of future cash flows. Using a sample of 4,397 Spanish companies (mostly privately held), we estimate in-sample regressions of future cash flows on isolated current cash flows and on accrual-based earnings. We then find that the out-of-sample prediction errors provided by the accrual-based earnings model are significantly lower than those obtained with the cash flows model. We also regress the decrease in prediction errors brought about by the addition of accruals on a set of firm-specific circumstances where accounting manipulation is expected. In all cases the decrease in prediction errors is significantly affected in the hypothesized direction.

Source: SERIEs

DOI: 10.1007/s13209-011-0070-7

Authors: Laura Arnedo, Fermín Lizarraga, Santiago Sánchez

Institutions: Universidad Pública de Navarra (UPNA), Universidad de Navarra

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Funders: Ministerio de Ciencia e Innovación, Gobierno de Navarra

OpenAlex ID: W2032347685