Predicting Future Operating Cash Flows in Jordanian Commercial Banks by Using Fair Value Accounting

Abstract

The aim of this paper is to examine the ability of fair value accounting data to predict future operating cash flows up to three years ahead in Jordanian commercial banks, as well as to test whether there are significant differences among banks according to their size with regard to the ability of fair value accounting to predict cash flows. Multiple linear regression method is used to analyze the financial data of the study population, which consist of (13) Jordanian commercial Banks for the period (2005-2014). The study sample is the same as the study population. The fair value financial assets and liabilities are used in (3) models. The first model contains net financial assets; the second model includes total financial assets and total financial liabilities; and the third model contains the detailed components of financial assets and liabilities. The study concludes that fair value accounting data (through net financial assets, through total financial assets and total financial liabilities, and through items of financial assets and financial liabilities) have a statistically significant predictive ability in predicting future operating cash flows of Jordanian commercial banks for three subsequent years. The results also show that there are no statistically significant differences among Jordanian commercial banks according to their size with regard to the ability of fair value accounting to predict future operating cash flows up to three years ahead. Nevertheless, the predictive ability is greater for large-sized banks. This study recommends maintaining the continuity of applying fair value accounting by Jordanian commercial banks, and following any updates related to fair value accounting in the IFRS.