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  • Further Evidence on the Usefulness of Direct Method Cash Flow Components for Forecasting Future Cash Flows

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    Author(s)
    Farshadfar, S
    Monem, R
    Griffith University Author(s)
    Monem, Reza
    Year published
    2013
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    Abstract
    Based on within-sample and out-of-sample tests on 348 listed Australian companies over 1992-2004, we find that direct method cash flow components have greater predictive ability for future cash flows than for aggregate operating cash flows. Unlike prior research, we use actual direct method cash flow data instead of estimated data in our forecasting models. The results are robust to a battery of sensitivity tests, including control for firm size, industry membership, profitability, negative cash flows, and the length of the operating cash cycle. Moreover, our results remain qualitatively similar for forecast horizons up to ...
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    Based on within-sample and out-of-sample tests on 348 listed Australian companies over 1992-2004, we find that direct method cash flow components have greater predictive ability for future cash flows than for aggregate operating cash flows. Unlike prior research, we use actual direct method cash flow data instead of estimated data in our forecasting models. The results are robust to a battery of sensitivity tests, including control for firm size, industry membership, profitability, negative cash flows, and the length of the operating cash cycle. Moreover, our results remain qualitatively similar for forecast horizons up to six years. Our findings directly contribute to the policy debate on whether standard setters should mandate direct method cash flow statements.
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    Journal Title
    The International Journal of Accounting
    Volume
    48
    Issue
    1
    DOI
    https://doi.org/10.1016/j.intacc.2012.12.001
    Copyright Statement
    © 2013 Elsevier. This is the author-manuscript version of this paper. Reproduced 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
    Publication URI
    http://hdl.handle.net/10072/54959
    Collection
    • Journal articles

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