Discretionary Accruals and the Predictive Ability of Earnings in the Forecast of Future Cash Flows: Evidence from Australia

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Author(s)
Farshadfar, Shadi
Monem, Reza
Griffith University Author(s)
Year published
2011
Metadata
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We examine whether discretionary and non-discretionary accruals improve the predictive ability of earnings for forecasting future cash flows in an Australian context. Using both within-sample and out-of-sample forecasting tests, we demonstrate that discretionary accruals improve the predictive abilty of earnings in the forecast of future cash flows. Further, discretionary and non-discretionary accruals and direct method cash flow components together are more useful than (i) aggregate earnings, (ii) aggregate cash flow from operations and total accruals, and (iii) aggregate cash flow from operations, discretionary accruals ...
View more >We examine whether discretionary and non-discretionary accruals improve the predictive ability of earnings for forecasting future cash flows in an Australian context. Using both within-sample and out-of-sample forecasting tests, we demonstrate that discretionary accruals improve the predictive abilty of earnings in the forecast of future cash flows. Further, discretionary and non-discretionary accruals and direct method cash flow components together are more useful than (i) aggregate earnings, (ii) aggregate cash flow from operations and total accruals, and (iii) aggregate cash flow from operations, discretionary accruals and nondiscretionary accruals.
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View more >We examine whether discretionary and non-discretionary accruals improve the predictive ability of earnings for forecasting future cash flows in an Australian context. Using both within-sample and out-of-sample forecasting tests, we demonstrate that discretionary accruals improve the predictive abilty of earnings in the forecast of future cash flows. Further, discretionary and non-discretionary accruals and direct method cash flow components together are more useful than (i) aggregate earnings, (ii) aggregate cash flow from operations and total accruals, and (iii) aggregate cash flow from operations, discretionary accruals and nondiscretionary accruals.
View less >
Journal Title
Corporate Ownership & Control
Volume
9
Issue
1
Copyright Statement
© 2011 VirtusInterpress. The attached file is reproduced here in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
Subject
Financial Accounting
Accounting, Auditing and Accountability
Banking, Finance and Investment
Business and Management