Real earnings management and the relevance of operating cash flows: A study of french listed firms

Saoussen Boujelben, Hela Khemakhem-Feki and Ahmad Alqatan ()
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Saoussen Boujelben: Sfax University
Hela Khemakhem-Feki: Sfax University
Ahmad Alqatan: Portsmouth Business School

International Journal of Disclosure and Governance, 2020, vol. 17, issue 4, No 4, 218-229

Abstract: Abstract The primary focus of this study is to investigate whether the level of earnings management through real activities (REM) affects the value relevance of reported cash flows from operations (CFO), precisely with regard to their ability to predict future CFOs. Using the data related to CAC all tradable listed French firms during 2008 through 2015, we provide evidence which supports the expected decrease in value relevance of reported CFO for future CFOs’ prediction in the presence of REM. Our finding highlights the fact that if managers decide to manipulate upward earnings through operating activities, they could adversely affect the information content of CFOs. More precisely, an aggressive deviation from normal activities leads to abnormal levels of the main operating inflows and outflows in an inconsistent way and this deteriorates the value relevance of cash flows from operations. This contribution is of use for creditors and investors and other key CFO users for prediction purposes as it urges them to make necessary adjustments when predicting the future ability of an entity to generate cash flows.

Keywords: Cash flows from operations; Earnings management; Real activities; Value relevance (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1057/s41310-020-00091-0

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