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

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Date
2012Version
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10.1007/s13209-011-0070-7
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 predicti ...
[++]
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. [--]
Subject
Publisher
Springer
Published in
SERIEs, (2012) 3:499–520
Departament
Universidad Pública de Navarra. Departamento de Gestión de Empresas /
Nafarroako Unibertsitate Publikoa. Enpresen Kudeaketa Saila
Publisher version
Sponsorship
This study has been carried out with the Financial support of the
Government of Navarra (Ayudas a proyectos de investigación, convocatoria 2007) and from the Ministry
of Science and Innovation (ECO2010-21627).
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