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

• Laura Arnedo ^[1] ; Fermín Lizarraga ^[1] ; Santiago Sánchez ^[1]
  1. [1] Universidad Pública de Navarra

     Universidad Pública de Navarra

     Pamplona, España

     
• Localización: SERIEs : Journal of the Spanish Economic Association, ISSN 1869-4195, Vol. 3, Nº. 4, 2012, págs. 499-520
• Idioma: inglés
• DOI: 10.1007/s13209-011-0070-7
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• Resumen

  • 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.