Work

The prediction of future cash flow for UK private companies

Year: 2024

Type: article

Abstract: UK private companies follow less stringent reporting standards than public ones. Despite extensive research on public companies’ financial reporting, little has been done for private firms, especially in the UK. We conducted prediction error tests on about 1.5 million observations on UK private companies from 2006–2022, distinguishing between the different classes of private companies: micro, small, medium-sized, and large. We found that errors in predicting future cash flow one period ahead for micro and small companies were only slightly larger than those of public companies. For medium-sized and large private companies, the errors were more than double, suggesting less informative disclosures. These results are robust for predicting beyond the next period and for times when financial distress is high. The impact of regulatory revisions for private companies in 2016, based on International Financial Reporting Standards for Small and Medium-sized Companies, is minor.

Source: Journal of Small Business Management

DOI: 10.1080/00472778.2024.2416044

Authors: Siming Liu, Len Skerratt

Institutions: Brunel University of London, University of Manchester

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,500

Funders: University of Dundee, Kingston University