Exploring the Changes in the Value Relevance of Direct Cash Flows under the Accounting Standards of Business Enterprises in China

Abstract

This study is designed to investigate whether the value relevance of direct cash flow statement has changed after the implementation of the Accounting Standards of Business Enterprises (ASBE) in China. Through the empirical research of the firms listed in both A and B share in Shanghai and Shenzhen stock markets, it is found that the value relevance of direct cash flow has increased after the ASBE. The core direct cash flow and the direct cash flow components also show an increase in the value relevance after the ASBE. The results of the research indicate that the direct cash flow statement is playing a more powerful role in Chinese stock market after the adoption of ASBE by providing more useful information for account users. The study is attempted to provide reasonable support for IASB and FASB to mandate the direct method of cash flow statements.