Changes In Cash Flows Research Articles

Earnings Management and the Effect of Earnings Quality in Relation to Bankruptcy Level (Firms Listed at the Tehran Stock Exchange)

This paper investigates the relationship between earnings management and quality of earnings for the bankrupt and non-bankrupt firms listed in the Tehran Stock Exchange from 2007 to 2012.The earnings quality is measured by four separate accounting-based earnings attributes: accruals quality, earnings persistence, earnings predictability; earnings and is also examined by testing the relationship between discretionary accruals as a measure of earnings management, being opportunistic or efficient earnings management. Also, the future profitability was measured by each of the three variables, future change of earnings, future cash flow from operation, and future non-discretionary earnings. The results of estimating unbalanced panel data technique for 55 firms subjected to bankruptcy of Altman's model, and 198 non-bankrupt firms, shows that the bankrupt firms tend to use opportunistic earnings management, and the non-bankrupt choose efficient earnings management. Moreover, the results show that earnings management performs better than earnings quality in predicting future profitability. Meanwhile, the non-discretionary earnings more effectively than future change of earnings and future cash flow from operation for providing a picture of the future profitability of the firm.

Sustainable financial reporting practice in Australian companies - does quality matter?

This study explores whether accounting and disclosure quality have been achieved in the current reporting practice (i.e. post-IFRS period) in Australian non-financial listed companies and whether stock market is sufficiently responsive (i.e. value relevance) to quality accounting numbers. Given the role of IFRS in enhancing reporting quality, it explores whether post-2005 reporting practice sufficiently effective (i.e. sustainable) in mitigating earnings management concerns of the investors and stakeholders’ at large, as well as explaining predictive value and return under the current regulatory environment. Applying GLS regression in a full sample of 2000-2014 and sub-samples of pre-IFRS and post-IFRS adoption periods, we document that accounting quality has been improved marginally in explaining change in profitability and cash flow in post-IFRS period as compared to pre-IFRS period. However, there is no significant progress in explaining change in receivables and sales between the pre and post-IFRS periods. Despite expectation of high value relevance of accounting information in post-IFRS period, our results suggest the opposite, i.e. value relevance is either disappeared or counter active in post-IFRS period as compared to pre-IFRS period. However, significant accounting quality improvement is observed in restraining earnings management practices in post-IFRS period. Overall, the findings highlight a mix representation of accounting/disclosure quality in post-IFRS period, which suggest that accounting quality still remains as a matter of concern in delivering quality financial reporting. Our findings raise questions, in an asymmetric information environment, about long-term decision usefulness of accounting numbers and sustainable financial reporting practice in Australia. Policy makers, regulators, accounting standard setters, investors and other stakeholders should understand that for Australian companies the accounting quality journey has not fully achieved yet as per expectation even after adopting IFRS and more to be done in this direction. While some improvements are commendable, further road-map is warranted for sustainable financial reporting practices in Australian companies.

Acquisitions of bankrupt and distressed firms

We focus on acquisitions of bankrupt firms and firms that recently emerged from Chapter 11 and compare these firms with acquired distressed firms to determine whether or not transaction timing plays a role in the outcomes of the mergers. We analyse deal premiums (or lack thereof) and evaluate post-merger operating cash flows to determine whether or not timing of the transactions impacts their effectiveness and success. We find that distressed targets sell their assets at a premium or at a discount smaller than bankrupt firms do, thereby benefiting from acquisitions more than bankrupt targets. We also find that abnormal post-merger cash flow and cumulative abnormal return changes are more pronounced for bankrupt than distressed firms, indicating that acquisitions in Chapter 11 add greater economic value for both target and its acquirer than do acquisitions outside of bankruptcy. We observe post-merger market performance improvements for bankrupt and not distressed firms.

What explains the change in a firm’s idiosyncratic volatility after a dividend initiation?

Purpose – The purpose of this paper is to identify three (maturity, agency, and information) effects that help explain the change in idiosyncratic volatility after a firm initiates a dividend. Design/methodology/approach – The paper uses a cross-sectional analysis where the standard errors are adjusted for heteroskedasticity. As for robustness check, the authors perform two-stage analysis to control for potential self-selection bias. The authors also control for 2003 Dividend Tax Cut effect, matching-firm volatility, and confounding events. Findings – Using a sample of 688 dividend-initiating firms for a period of 1977 to 2010, the authors find evidence consistent with the hypotheses based on the maturity, agency, and information effects. The volatility changes upon the dividend initiation can be reliably explained by the changes in profit volatility and free cash flow per total assets, and whether the firm consummated a stock split prior to the dividend initiation. The information effect is also found to be economically significant. Originality/value – By studying a firm’s decision to initiate a dividend and its impact on the change in its volatility, the research helps contribute to the payout policy and volatility literatures.

The sensitivity of payouts to corporate financing decisions

Purpose – The purpose of this article is to empirically explore the sensitivity of payouts to cash flows and the other financing decisions, such as debt and investment, of firms. Design/methodology/approach – Using panel regressions based on COMPUSTAT data for 7,544 public firms during the period 1973–2013, we estimate the sensitivity of total payouts. Specifically, following the theory presented in Lambrecht and Myers (2012), we test the interdependent financing decisions of the firm. First, we compute total payout as the sum of cash dividends and net stock repurchases; second, we examine the sensitivity of total payouts to changes in the firm’s net income, debt and investment. Furthermore, we present several tests to demonstrate the robustness of our results. Findings – We suggest evidence in support of the theory in Lambrecht and Myers (2012) showing that there is a negative relationship between total payouts and investment. Furthermore, we find that total payouts are positively associated with net income and debt of the firm. Originality/value – Previous research has shown how cash flows affect different financing decisions, but it is not clear how total payouts are sensitive to other financing decisions. The focus of this paper is the response of total payouts to investment policy, debt financing policy and changes in cash flows.

The Impact of Dividend Distribution on Cash Flow Predictability in Tehran Stock Exchange

This study investigates the impact of dividend distribution on the predictability of cash flow data. Predictability is defined as the ability of an accounting variable to predict future cash flows. Dividend Distribution among shareholders is an indicator for predicting cash flow. The period of this study is from 2007-2012 and the sample is 121 companies listed on the Tehran stock exchange. In this research, the dependent variable is cash flow predictability and the independent variable is dividend distribution as well as control variable is firm size. Multivariate regression analysis was used to test the research data. According to the research findings, cash flow forecasting has normal distribution and the changes in future cash flows are because of changes in dividend distribution (cash distributions to shareholders). The research findings show firm size has the same effect on free cash flow and operating cash flow. DOI: 10.5901/mjss.2015.v6n6s2p591

Accounting Earnings, Change in Market Value and Cash Flows

Our analyses are based on the observation that the portion of change in enterprise value captured in earnings differs according to the source of value change. These sources are: (1) cash flows to/from debt holders, equity holders, and/or cash reserves; and, (2) changes in value of assets in place (i.e., enterprise returns). We demonstrate that the effect on earnings of each source of growth captures distinct aspects of accounting conservatism. Although the effect of cash flows on earnings has received little attention in the extant literature, we show that it explains more of earnings than is explained by enterprise returns. We show that the difference in the portion of negative cf. positive enterprise returns captured in current earnings is similar to the portion of negative cf. positive equity returns reported in the extant literature. We also demonstrate an interaction between the sign of returns and cash flows.

Innovation and credit constraints: evidence from Swedish exporting firms

ABSTRACTUsing data from approximately 8300, primarily small, exporting firms in Sweden observed over the business cycle period 1997–2007, we examine the relationship between innovation and financial factors in a regression that include changes in cash holdings, cash flow and debt issues. Our nonlinear econometric approach with interaction variables between recession period, technology intensity and finance suggests that innovative firms in high-tech sectors tend to offset the effect of a negative financial shock by exploiting internal cash resources. No corresponding link between innovation and financial factors is found for medium and low-technology exporters.

Recognition versus disclosure: evidence from fair value of investment property

The application of International Accounting Standard 40, Investment Property, in the European Union created a unique setting to study the implications of a decision to recognize versus disclose financial statements’ items, because in this setting recognized and disclosed investment-property-related amounts share a common measurement base, i.e., fair value. I use this setting to (1) explore a firm’s choice to recognize versus disclose fair values of investment properties, (2) test whether recognized and disclosed amounts are valued equally by investors, and (3) determine whether these amounts exhibit equivalent associations with future financial outcomes. To correct for self-selection concerns and assure I compare analogous amounts, I develop a selection model and construct investment-property-related amounts that differ only in whether their components are recognized or disclosed. I find that (1) contractual and asset-pricing incentives help to explain the recognition versus disclosure choice, (2) investors place smaller valuation weights on disclosed amounts, and (3) recognized and disclosed amounts exhibit statistically equivalent associations with future changes in net rental income and cash flows from operations. Taken together, the evidence suggests that managers are opportunistic in making the recognition versus disclosure choice and that even when recognized and disclosed amounts share an equivalent measurement base and are equally relevant for future financial outcomes, investors weight disclosed information less heavily in determining a firm’s value.

Real Estate Project Financial Evaluation Based on Cash Flow Estimation

This paper analyzes the factors influencing cash flows and divides them as certainty factors and uncertainty factors; it mainly discusses the uncertainty factors causing change of cash flow. For the characteristics of uncertainty of cash flows in real estate project, we adopted probability theory and mathematical statistics to balance and estimate the cash flows. Then the computer simulation method for uncertainty factors based on Beta distribution and normal distribution is proposed, with the prediction method of cash inflow and outflow. Illustrated by the case of actual real estate projects, we provided financial evaluation by traditional evaluation methods and simulation methods of uncertainty factors and compared the evaluation results. The experiment results show that the improved method has more scientific and accurate performance in basic data, compared to the traditional method, and it can acquire more reliable Evaluation results.

PENGARUH RISIKO NILAI TUKAR RUPIAH TERHADAP RETURN SAHAM : STUDI EMPIRIS PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BEJ

Rupiah exchange rate fluctuation occurred since July 1997 has risked rupiah depreciation on US Dollar and other mayor trading parther’s currencies, that are Yen (Jepang), Mark (Germany), Franc (French), Poundsterling (UK), Dollar (Singapore), and Dollar (Hongkong). The objective of this study is to examine the economic exposures differences of rupiah exchange rate before and after rupiah depreciation, and the different effect of rupiah exchange rate on stock return before and after rupiah depreciation. This study use Chow differential test to compare regression results at two different periods, period of 1994-1996 and 1998-2000 with the same sample. Two models regression equation were used and each model was differentially tested in two periods. Independent variable of the two models was average monthly rupiah real effective exchange rate (REER) during a year from December to November following year, and it was controlled by total debt (THUTANG) of the manufacture during a year. Dependent variable for the first regression model was EPS change of companies during a year, and for the second regression model was daily abnormal return accumulated during a year (CAR). Although regression analysis at the second period showed contrary or defferent result, but after tested with Chow test, it was indicated that economic exposure of rupiah exchange rate change on cash flow change at the second period was not different. It was proved, then, that the effects of rupiah exchange rate on stock return were different between period of before and after the rupiah depreciation. Keywords: Real Effective Exchange Rate, Exposure, Capital Adequacy, Earnings per share

INCREASE THE ADDED VALUE AND THE CHANGE IN FREE CASH FLOW OF THE ENTERPRISE BASED ON THE OPTIMIZATION OF CURRENT ASSETS AND CURRENT LIABILITIES

The paper deals with research of influence to the added value by current assets and liabilities. The structure and dynamics of the value added by economic activity are presented in the first part. The redistribution of added value between organizations of the holding and one of the reasons are considered. The second part examines the relationship of the added value and free cash flow. The main use of the value added is submitted. In the third part the methodology of maximizing the added value that equivalent to optimize current assets and liabilities is provided. There is presented the change in free cash flow and factor analysis owing to the optimizing.

The Effect of Debt, Firm Size, and Liquidity on Investments-Cash Flow Sensitivity: Evidence from Iran

The cash flows of a business are the most basic concepts in accounting. Cash flows have a significant impact on investments, as they are less expensive than external sources of finance and can be more readily controlled by managers. Therefore, changes in cash flows can lead to changes in investment, also called investment-cash flow sensitivity, which can be affected by firm-specific attributes such as size, liquidity, and capital structure. Thus, the purpose of this research is to examine the effect of debt, firm size, and liquidity on investment-cash flow sensitivity. 840 firm-year observations in a sample of firms listed on Tehran Stock Exchange in the period 2007–2012 were examined. Test of stationary, F-test, Hausman test, and panel data (fixed effects) were used for data analysis. In sum, the results showed that debt and firm size had a significant positive effect and liquidity had a significant negative effect on investment-cash flow sensitivity.

Financial and economic analysis of gazelle firms in Central Catalonia

Purpose : The present study reflects the financial and economic analysis of gazelle firms in Central Catalonia. Gazelle firms are considered as drivers of the economy of a territory. We are therefore interested in examining the financial health of these firms during the analyzed period. The study classifies these companies and presents the main economic and financial indicators in order to diagnose the health of these companies during the period 2008-2012. We conduct a short- and long-term financial analysis, an analysis of the results, and an analysis of changes in equity and cash flows of these gazelle firms. Design/methodology/approach: We use data of the financial statements of these firms during the period 2008-2012 from the SABI database. In particular, the sample contains industrial enterprises in the subprovinces of Central Catalonia which have a minimum of 5 employees, have had a 6% sales growth in recent years, and have a minimum financial return of 5%. We conduct a financial and economic analysis with the appropriate descriptive statistics and regression analysis, resulting in findings and conclusions. Findings: The study indicates that the gazelle firms enjoyed good economic and financial health during the examined period. A reduced number of firms stood for most of the sales. These are firms with a balanced growth, since they have an efficient management of assets, prudent financial management (except for companies with few employees) and good cost management. The firms are solvent with a debt that is acceptable but of poor quality. They present an upward trend regarding return on assets, with a more moderate increase in equity. Research limitations/implications: It would be interesting to extend the sample to other subprovinces and to use current data to confirm the changing trends identified in the economic and financial analysis. Practical implications: The findings permit an assessment of the positioning of these firms in Catalonia during recent years, in order to make appropriate economic decisions. Social implications: The results allow us to highlight situations that firms can improve in order to maintain their good positioning in the market. Originality / value: For these companies, we provide financial and economic information regarding firm health for assuming future challenges and maintaining their current positioning.

The Changing Landscape of Accrual Accounting

A fundamental property of accrual accounting is to smooth temporary timing fluctuations in operating cash flows, indicating an inherent negative correlation between accruals and cash flows. We show that the overall correlation between accruals and cash flows has dramatically declined in magnitude over the past half century and has largely disappeared in more recent years. The adjusted R2 from regressing (changes in) accruals on (changes in) cash flows drops from about 70% (90%) in the 1960s to near zero (under 20%) in more recent years. In exploring potential reasons for the observed attenuation, we find that increases in non-timing-related accrual recognition, as proxied by one-time and non-operating items and the frequency of loss firm-years, explain the majority of the overall decline. On the other hand, temporal changes in the matching between revenues and expenses, and the growth of intangible-intensive industries play only a limited role in explaining the observed attenuation. Lastly, the relative decline of the timing role of accruals does not appear to be associated with an increase in the asymmetrically timely loss recognition role.

An ex ante analysis on the use of activity meters for automated estrus detection: To invest or not to invest?

The technical performance of activity meters for automated detection of estrus in dairy farming has been studied, and such meters are already used in practice. However, information on the economic consequences of using activity meters is lacking. The current study analyzes the economic benefits of a sensor system for detection of estrus and appraises the feasibility of an investment in such a system. A stochastic dynamic simulation model was used to simulate reproductive performance of a dairy herd. The number of cow places in this herd was fixed at 130. The model started with 130 randomly drawn cows (in a Monte Carlo process) and simulated calvings and replacement of these cows in subsequent years. Default herd characteristics were a conception rate of 50%, an 8-wk dry-off period, and an average milk production level of 8,310kg per cow per 305 d. Model inputs were derived from real farm data and expertise. For the analysis, visual detection by the farmer (“without” situation) was compared with automated detection with activity meters (“with” situation). For visual estrus detection, an estrus detection rate of 50% and a specificity of 100% were assumed. For automated estrus detection, an estrus detection rate of 80% and a specificity of 95% were assumed. The results of the cow simulation model were used to estimate the difference between the annual net cash flows in the “with” and “without” situations (marginal financial effect) and the internal rate of return (IRR) as profitability indicators. The use of activity meters led to improved estrus detection and, therefore, to a decrease in the average calving interval and subsequent increase in annual milk production. For visual estrus detection, the average calving interval was 419 d and average annual milk production was 1,032,278kg. For activity meters, the average calving interval was 403 d and the average annual milk production was 1,043,398kg. It was estimated that the initial investment in activity meters would cost €17,728 for a herd of 130 cows, with an additional cost of €90 per year for the replacement of malfunctioning activity meters. Changes in annual net cash flows arising from using an activity meter included extra revenues from increased milk production and number of calves sold, increased costs from more inseminations, calvings, and feed consumption, and reduced costs from fewer culled cows and less labor for estrus detection. These changes in cash flows were caused mainly by changes in the technical results of the simulated dairy herds, which arose from differences in the estrus detection rate and specificity between the “with” and “without” situations. The average marginal financial effect in the “with” and “without” situations was €2,827 for the baseline scenario, with an average IRR of 11%. The IRR is a measure of the return on invested capital. Investment in activity meters was generally profitable. The most influential assumptions on the profitability of this investment were the assumed culling rules and the increase in sensitivity of estrus detection between the “without” and the “with” situation.

Potential cost to Western Australia of proposed patient co-payments according to healthcare organisational structure: A preliminary analysis

The Australian federal government has proposed an AUD $7 patient co-payment for a general practitioner (GP) consultation. One effect of the co-payment may be that patients will seek assistance at public hospital emergency departments (EDs), where currently there is no user charge. We studied the possible financial impact of patient diversion on the Western Australia (WA) health budget. We constructed a spreadsheet model of changes in annual cash flows including the co-payment, GP fees for service, and rates of diversion to emergency departments with additional marginal costs for ED attendance. Changes in WA cash flows are the aggregate of marginal ED costs of treating diverted patients and added expenditure in fees paid to rural doctors who also man local emergency centres. The estimated costs to WA are AUD $6.3 million, $35.9 million and $87.4 million at 1, 5, and 10 per cent diversion, respectively. Commonwealth receipts increase and expenditure on Medicare benefits declines. A diversion of patients from GP surgeries to ED in WA caused by the co-payment will result in increased costs to the state, which may be substantial, and will reduce net costs to the Commonwealth.

Do Stock Prices Move Too Much to Be Justified by Changes in Cash Flows? New Evidence from Parallel Asset Markets.

We take advantage of two parallel markets for a set of cash flows to show that better cash flow measurement improves the performance of a dividend discount model. Unlike previous literature, we use out-of-sample estimation. We construct a natural laboratory, by using a unique dataset of commercial real estate and augmenting the dividend information for REITs with cash flow information from this parallel market. The results improve dramatically when information from direct property cash flows is added. These findings suggest that the performance of dividend pricing models improves greatly with better measurement of cash flows, and thus contribute to the resolution of the excess volatility puzzle.

ANALISIS PENYAJIAN LAPORAN KEUANGAN PADA PT.MULTISARANA BAHTERAMANDIRI BERDASARKAN PSAK NO.1 DAN NO.2

Statement of Financial Accounting Standards (SFAS) number 1 and 2 states that financial statements should present fairly the financial position, financial performance, changes in equity and cash flow. Companies to implement SFAS correctly with the required disclosures in the Notes to the Financial Statements. Objects in this research is PT.Multisarana Bahteramandiri. The purpose of this study is to analyze the financial statement presentation PT.Multisarana Bahteramandiri under SFAS Number 1 and 2. The method used is descriptive analysis method is an analytical tool that compares two different aspects of theory and practice that need to be met in order to know the difference, as far as what the difference is. Results of the analysis of these data showed that PT.Multisarana Bahteraamandiri not fully implemented SFAS number 1 and 2 in the company's financial statement presentation. Because the company only present a statements of financial position, income statement, cash flow statement, as well as company-specific notes. The company also not disclose a statement of compliance with the Statement of Financial Accounting Standards (SFAS) number 1 and 2 in the notes to financial statements.

Recognition Versus Disclosure: Evidence from Fair Value of Investment Property

The application of International Accounting Standard (IAS) 40, Investment Property, in the European Union created a unique setting to study the implications of a decision to recognize versus disclose financial statements’ items because in this setting recognized and disclosed investment-property-related amounts share a common measurement base, i.e., fair value. I utilize this setting to (1) explore factors associated with a firm’s choice to recognize versus disclose fair values of investment properties, (2) test whether recognized and disclosed amounts are valued equally by equity investors, and (3) determine whether these amounts exhibit equivalent associations with future financial outcomes. To correct for self-selection concerns and assure I compare analogous amounts, I develop a selection model and construct investment-property-related amounts that differ only in whether their components are recognized or disclosed. I find that (1) contractual and asset pricing incentives help explain the recognition versus disclosure choice, (2) investors place smaller valuation weights on disclosed amounts, and (3) recognized and disclosed amounts exhibit statistically equivalent associations with future changes in net rental income and cash flows from operations. Taken together, the evidence suggests that managers are opportunistic in making the recognition versus disclosure choice and that even when recognized and disclosed amounts share an equivalent measurement base and are equally relevant for future financial outcomes, investors weight disclosed information less heavily in determining a firm’s value.