Direct Cash Flow Research Articles

Foreign Direct Investment Outflow and Securities Market Volatility in Nairobi Securities Exchange, Kenya

The study was undertaken to assess the effects of foreign direct investment on the securities market Volatility at NSE, Kenya. Although this topic has been the focus of financial studies, the relationship between foreign direct investment outflow and securities market volatility has not been completely analyzed. Global empirical research has produced conflicting results regarding how foreign direct investment affects the volatility of the securities market. The findings are contradictory, which calls for additional research to be done in the current study to determine how international capital outflow affects the volatility of securities traded at Kenya's NSE. The study utilized an explanatory research methodology and used secondary data to focus on the listed institution at the Nairobi Securities Exchange in Kenya. The impact of outflows of foreign direct investment on the volatility of the securities market over the research period was evaluated using the census technique. The analysis discovered a statistically significant positive link between foreign direct investment and GDP. According to the study's findings, the FDIO and SMV as represented by the NSE all share index had a favourable association. It means that adjustments to FDIO are probably going to have a noticeable impact on the volatility of the stock market. The study recommends that regulators should keep a close eye on the flow of FDIO leaving the Nairobi securities exchange market and to take precautions to prevent an excessive outflow from destabilizing the market and posing a risk to the stability of the capital market. Keywords: Foreign direct investment Cash flow, Nairobi Securities exchange security market volatility

The Ability of The Direct Method Operating Cash Flow Components in Predicting Future Cash Flows and Dividens (in Manufacturing Companies Listed on The Indonesia Stock Exchange in 2018-2021)

This research is associative research with a quantitative approach which aims to analyze the ability of the direct method operating cash flow components in predicting future cash flows and dividends in manufacturing companies listed on the Indonesia Stock Exchange in 2018-2021 period. The samples used in this study were 32 companies. Sampling used technique purposive sampling. The analytical method used is panel data regression. The data is tested using software Eviews 10. Operating cash flow proxied by cash inflows and cash outflows had a significant impact on predicting future cash flows in the first model study, as evidenced by partial testing with the t test. However, the second model study's findings demonstrate that operating cash flow, as proxied by cash inflows and cash outflows, has no significant impact on predicting future dividends.

PENGEMBANGAN SISTEM PENGENDALIAN ARUS KAS MENGGUNAKAN METODE DIRECT CASH FLOW (STUDI KASUS : BADAN KESATUAN BANGSA DAN POLITIK DAERAH PROVINSI LAMPUNG)

The study, entitled Accounting Information Systems Cash Flow Control Direct Cash Flow Method (Case Study: National Unity and Political Agency of Lampung Province) in the process of controlling the flow of funds in the finances of the National Unity and Political Agency of Lampung Province found problems including the recording process on the finance department uses a ledger (manual recording). Using the ledger (recording) causes the recording to be less effective and also takes a long time. This study aims to facilitate the finance department in the process of managing funds. Data collection techniques include observation, interviews, documentation, and literature review. The system development method used in this research is the Prototype method using UML (Unified Modeling Language) as a tool to analyze the system to be made including Use Case Diagrams, Activity Diagrams and Class Diagrams. The development of this system uses the PHP programming language, Codeigniter framework version 3.1, Sublime as a Text editor version 3.1.1 (64 bit), and MySQL database version 11.11 (64 bit) as a database management system. The results of this study are able to build web-based applications and can manage financial transactions and present financial reports quickly and well, which has been tested by Blackbox and obtained a percentage with a value of 100%, and results that the system can run according to user needs and is feasible to use workable

Intelligent Supervision and Earnings Management Choice：A Natural Experiment Based on Golden Tax-III

This paper studies the impact of intelligent tax supervision on the decision of corporate earnings management. Companies determine earnings management strategies by weighing the marginal benefits and costs of accrual-based earnings management and real earnings management. Existing literature finds that managers prefer real earnings management than accrual-based earnings management because of regulatory pressure. This paper takes tax costs into consideration and adopts that tax will affect the substitution relationship between different earnings management methods.Accrual-based earnings management is realized by accounting methods. But real earnings management has a direct cash flow effect. Compared with accrual-based earnings management, real earnings management is subject to a higher level of book-tax conformity. Real activity manipulation is more costly due to tax incentives. Intelligent tax supervision represented by Golden Tax-III can effectively realize information integration and reduce information asymmetry between taxpayers and tax authorities. It can help to identify companies whose tax burdens deviate from the industry average. So Golden Tax-III can strengthen tax supervision and significantly increase the tax costs of real earnings management. Then, it can affect earnings management strategies. The higher the degree of tax non-compliance, the greater the impact of the implementation of Golden Tax-III.We use the implementation of Golden Tax-III as an exogenous event to construct a DID test. The results show that: Tax-noncompliant companies have a higher level of accrual-based earnings management after Golden Tax-III; tax-noncompliant companies have a lower level of real earnings management after Golden Tax-III; the substitution relationship between the two earnings management strategies in tax-noncompliant companies is mainly reflected after Golden Tax-III.The main contributions of this paper are as follows: (1) It directly examines the impact of tax costs on earnings management strategies, and finds that companies prefer accrual-based earnings management to real earnings management under strong tax supervision. It also expands the previous earnings management model. The research enriches and supplements the literature on earnings management. (2) It constructs a DID test to examine the impact of tax regulation on earnings management based on the implementation of Golden Tax-III. It can help to solve the problem of self-selection and endogeneity and supplement the relevant literature on tax and earnings management. (3) It finds that the intelligent supervision represented by Golden Tax-III can effectively distinguish tax-noncompliant companies and achieve precise supervision. The results help to understand and evaluate the economic consequences of Golden Tax-III, and also provide enlightenment for the development of intelligent tax supervision and taxation regulatory policy.

Comparison of the Accuracy of Direct and Indirect Methods of Cash Flow Models in Predicting Future Profits

Financial reports are part of the financial reporting process. Complete financial statements usually include balance sheets, income statements, statements of changes in financial position (which can be presented in various ways, for example, as cash flow statements, or cash flow statements), notes and other reports and explanatory material that are an integral part of the financial statements. . The purpose of this study is to provide empirical evidence whether a model with a direct cash flow component has a more accurate predictive ability than a model with an indirect cash flow component to predict future earnings. The parameters of this research model were estimated using panel data regression. This study considers 4 regression methods of penel data, namely (1) linear regression model (OLS), (2) covariance model (FEM), (3) error components (ECM) model, (4) time series autocorrelation model (GLS) ( Thiono, 2007). The results of the analysis of this study are the direct method cash flow component is more accurate than the indirect method cash flow component in predicting future earnings in manufacturing companies, finding that the direct method component is more accurate than the indirect method. Then for the cash flow component model the direct method is more accurate than the model with the indirect method cash flow component in predicting future earnings in non-manufacturing companies, finding that the cash flow components of the direct method and the indirect method do not differ in their accuracy in predicting future earnings.

KEAKURATAN MODEL ARUS KAS METODE LANGSUNG DALAM MEMPREDIKSI ARUS KAS DAN DIVIDEN MASA DEPAN (STUDI EMPIRIS PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA TAHUN 2009-2012)

The research was perfomed to determine the accuracy of the direct method cash flow models in predicting future cash flow and dividend. This study aims to test the accuracy of the models direct cash flow method in predicting future cash flow and dividend. The study evaluated cash flow and dividend prediction models, that employed cash inflows from operating activities and cash outflows for operating activities. Populations in the study are all of manufacturing firmsthat listen on Indonesian Stock Exchange in the period of 2009-2021. In this study, samples taken by purposive sampling metod on certain criteria. the research gets 15firms from 131 firms which mathc with criteria. Establishment of Prediction Model using Ordinary Least Squares regression analysis, and hypothesis testing done with test Paired Samples T-Test. The results of this study showed that the models of the direct method cash flow accurately in predicting future cash flow and dividend.

CASH FLOW FOR THE VAT IN THE FARMING

The aim of this article is to present the possibility of using farmers’ cash accounting method. It is regarding farmers which resigned from the lump sum and became active paymasters of this tax. The cash method used in the tax and revenue book (PKPiR) was critically evaluated. At the same time, on the example of the Agricultural Accountancy Calendar (RKR), it has been shown that it is possible to integrate accounting with the accounting method of VAT accounting with accounting entries in the RKR enabling direct cash flows from operations, investment, financial and private operations. It is also possible to draw up other financial statements: profit and loss account, balance sheet and changes in equity. For a farmer, the significant benefit of using a cash-flow method is to reduce the risk of congestion resulting from the need to settle VAT before receiving payments from the debtor. For the tax office, the necessity to pay the full payment before claiming the input VAT refund significantly limits the possibility of fraud in this regard.

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

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.

Free Cash Flow as a Reliable Proxy for Predicting Stock Returns

Bad faith and corruption within financial reporting and inconsistent representation of corporate earnings questions the quality of earnings as an available means of measuring firm performance, and furthermore, predicting stock returns. Using direct method cash flows provides a clear picture of a firm’s health and sustainability and enables an understanding of the economic reality of a firm’s operations beyond the bottom line. This paper tests the explanatory power of free cash flows for the cross-section of stock returns alongside those of earnings. The extension of the Fama-French 3 Factor model with a “Clean” Free Cash Flow (CFCF) factor and a “Bottom-line” (BL) Earnings (Net income) factor reveals that both factors are significant in predicting annualized stock returns. Across a sample of various firm sizes, further data re-construction shows that free cash flows are an important measure in stock selection. This paper will contrast and reflect upon other empirical work supporting earnings or other methods for stock yield estimators.

Are Cash Flows Better Stock Return Predictors Than Profits?

Although various income statement–based measures predict the cross section of stock returns, direct method cash flow measures have even stronger predictive power. We transform indirect method cash flow statements into disaggregated and more direct estimates of cash flows from operations and other sources and form portfolios on the basis of these measures. Stocks in the highest-cash-flow decile outperform those in the lowest by over 10% annually (risk adjusted). Our results are robust to investment horizons and across risk factors and sector controls. We also show that, in addition to operating cash flow information, cash taxes and capital expenditures provide incremental predictive power.

A comparison of alternative cash flow and discount rate news proxies

Abstract This paper evaluates various methods of estimating firm-level Cash Flow and Discount Rate news. The standard VAR approach of Campbell (1991) and Voulteenaho (2002) is compared to two alternatives that use analysts' forecasts as proxies for market expectations: the ICC method of Chen et al. (2013) and the Revisions in Analysts' Forecasts (RAF) method. Methods are evaluated based on (i) the forecast accuracy of cash flow expectations, (ii) association with the other proxies of CF news, and (iii) Monte-Carlo simulations. The results suggest that analysts' forecasts behave as more accurate proxies of market expectations than the VAR system predictions. The ICC method is sensitive to the cash flow forecast errors because it amplifies forecast errors during implied cost of capital estimation. Overall, the RAF method appears to have a greater construct validity than the VAR and ICC methods as it incorporates forward looking information of direct cash flow forecasts and avoids amplification of forecast errors.

The Costs and Benefits of Requiring an Additional Presentation of Direct Cash Flow Statements Evidence from Accounting Practice and Empirical Research

IASB and FASB staff are proposing that the direct in addition to the indirect method of presenting operating cash flows should be required. Critics argue that direct presentation would be too costly, less reliable and impede the timely release of filings. Based on a recent report on the practices of German firms, we show that these concerns are not well founded. We corroborate this result with evidence from Australian firms that only exceptionally discontinued the direct method when, in 2007, the IAS 7 choice between both methods was introduced. Critics further argue that the direct method would not provide useful information, while the staff proposal assumes it to be more useful, referring in particular to academic research. Recent reviews of related empirical studies (e.g. Bradbury, 2011; Hales and Orpurt, 2013) indeed favor mandating the direct method. In our detailed review, we show that extant studies do not adequately address the current standard-setting issue of requiring direct in addition to indirect presentation. Thus, we conclude that it is not appropriate to use the results of extant academic research in support of the staff proposal.

What Determines Managers' Perceptions of Cash Flow Forecasting Quality? Evidence From a Multinational Corporation

In this article, we develop and test a model of the determinants of managers' perceptions of cash flow forecasting quality in nonfinancial companies. We expect and find that managers' perceptions of the quality of cash flow forecasts are determined by the perceived quality of the input data, the effort invested in forecasting, and the efficiency of the related processes, and ultimately by a company's orientation toward financial goals. Our empirical analysis is based on data from a worldwide questionnaire survey at a multinational industrial company. While we find that managers assess forecasting effort lower and forecasting efficiency higher for direct cash flow forecasting than for indirect method forecasting, our analyses reveal that the variables in our model, the postulated relationships between them, and the estimated effect sizes are equally valid for both forecasting methods.

Do Stock Prices Move too Much to be Justified by Changes in Dividends? Evidence from Real Estate Investment Trusts

A central issue in asset pricing is whether asset prices move too much in relation to cash flows. We take advantage of the existence of two parallel markets for a set of cash flows to show that better measurement of cash flows can dramatically improve the performance of a dynamic dividend discount model. We apply the model to returns on Real Estate Investment Trusts (REITs) and REIT dividends. We use a unique data set of directly held commercial real estate and augment information in REIT dividends with information from cash flows from this parallel market. The addition of this information leads to a significant improvement in the performance of a traditional dividend discount model. First, when REIT dividends are supplemented with direct property dividends, innovations in cash flows and economic news explain approximately 24% of REIT return variation. This is higher than the approximately one-fifth of variation explained in the stock market as reported in the classic study by Cutler, Poterba and Summers (1989). Second, we apply a dividend discount model to REITs, using out-of-sample estimation, unlike previous literature. When only information from REIT dividends is used, the model performs somewhat better than was previously found for the stock market (Campbell and Shiller (1988b)), which is congruous with the nature of REITs and the information content of their dividends. The results, however, further improve dramatically when information from direct property cash flows is added to the model. 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.

Are Cash Flows Better Stock Return Predictors than Profits?

Although various income statement–based measures predict the cross section of stock returns, direct method cash flow measures have even stronger predictive power. We transform indirect method cash flow statements into disaggregated and more direct estimates of cash flows from operations and other sources and form portfolios on the basis of these measures. Stocks in the highest-cash-flow decile outperform those in the lowest by over 10% annually (risk adjusted). Our results are robust to investment horizons and across risk factors and sector controls. We also show that, in addition to operating cash flow information, cash taxes and capital expenditures provide incremental predictive power.

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.

The Value Relevance of Direct Cash Flows Under IFRS

This study examines if there has been a change in the value relevance of direct cash flow components since the adoption of International Financial Reporting Standards (IFRS) in Australia. Our results show that for both industrial and extractive firms direct cash flow statements are value relevant under Australian Generally Accepted Accounting Principles (AGAAP) and remain so after the adoption of IFRS. In addition, for industrial firms there is a significant increase in the value relevance of direct cash flows after IFRS, along with an increase in the value relevance of accruals. These results are consistent with the proposition that direct cash flows play a reinforcing role that complements the more complex IFRS accounts. Consequently, if the International Accounting Standards Board (IASB) were to mandate direct cash flow statements it would, in all likelihood, provide users of accounts with a valuable incremental source of hard transaction information.

An Analysis of the Predictive Ability of Direct Cash Flow Information Under IFRS

In this paper, we examine the predictive ability of direct cash flow information under IFRS. Employing a combination of in- and out-of-sample cross sectional models, we provide the first empirical evidence on the predictive ability of direct cash flow information in an IFRS environment. Under IFRS, our models show the greatest explanatory power and lowest forecast errors when utilising information found only in a direct cash flow statement. Crucially, after controlling for size, we note that while our direct cash flow models report lower forecast errors for large firms, they produce no better forecasts for small firms than a parsimonious operating cash flow model. While confirming the predictive ability of direct cash flow information in an IFRS setting, our results question the benefit of the IASB and FASB mandating direct cash flow statements for small firms.

The Value Relevance of Direct Cash Flows under International Financial Reporting Standards

This study examines if there has been a change in the value relevance of direct cash flow components since the adoption of International Financial Reporting Standards (IFRS) in Australia. Our results show that for both industrial and extractive firms direct cash flow statements are value relevant under Australian Generally Accepted Accounting Principles (AGAAP) and remain so after the adoption of IFRS. In addition, for industrial firms there is a significant increase in the value relevance of direct cash flows after IFRS, along with an increase in the value relevance of accruals. These results are consistent with the proposition that direct cash flows play a reinforcing role that complements the more complex IFRS accounts. Consequently, if the International Accounting Standards Board (IASB) were to mandate direct cash flow statements it would, in all likelihood, provide users of accounts with a valuable incremental source of hard transaction information.

A Review of Academic Research on the Reporting of Cash Flows from Operations

SYNOPSIS: We provide a comprehensive review of academic research related to direct method cash flow presentation. While many financial statement users have stated a preference for the direct method, few accounting standard setters around the world have required it and, given a choice, most entities present operating cash flows using the indirect method. Our review indicates that academic research has generally found direct method cash flow information to be decision useful. Also, research finds that direct method information is reflected in stock prices indicating that users appear to utilize this information when available. However, there are, as of yet, no studies detailing how this information makes its way into stock prices. Finally, the evidence we review suggests that direct method information is economically significant and that the recurring benefits that many firms derive from providing direct method information likely exceed recurring costs. Our review should be of interest to academics researching cash flow reporting and also to policy makers as they continue debating the merits of the direct method presentation of operating cash flows.