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

Laura Arnedo, Fermín Lizarraga () and Santiago Sánchez

SERIEs: Journal of the Spanish Economic Association, 2012, vol. 3, issue 4, 499-520

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. Copyright The Author(s) 2012

Keywords: Cash flows; Accruals; Prediction; M41 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s13209-011-0070-7

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