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The Incremental Cash Flow Predictability of Accrual Models
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Abstract: (6898 Views) |
| Prior studies on the incremental predictive ability of accrual models over cash flow models with respect to future cash flows led to conflicting results. This paper extends the model of the accrual process developed by including cash flow implications of growth in future sales and using direct observations on the new model's parameters. The Barth, Cram, and Nelson model is further modified to allow the incorporation of accrual-based prediction of future sales. The evidence shows that the incremental predictive ability of accrual models in not uniform across firms. The paper also investigates the factors that affect the cross- sectional variability in the incremental predictive ability of accrual models specifically, the incremental predictive ability of the accrual models in found to be decreasing in the volatility of earnings and sales as well as decreasing in the volatility of the ration of inventors to future sales. The evidence supports the hypotheses that the incremental predictive ability is increasing in size. |
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| Keywords: Accrual models, Accruals, Prediction of future cash flows. |
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Full-Text [PDF 924 kb]
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Type of Study: Research |
Subject:
Special
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