The Incremental Information Content of Accruals: Evidence Based on the Exponential Smoothing of Levels and Trends in Pre-Tax Earnings, Funds Flow and Cash Flow

<span>This study investigates the relationship between the informativeness and the predictability of cash flow data. Predictability is defined as the ability of an accounting variable to predict future cash flows. Using a two-signal capital asset pricing model, this study predicts that the incremental informativeness of cash flows is an increasing function of its predictability and a decreasing function of the predictability of earnings. The empirical evidence is consistent with this prediction. This study contributes to the cash flow/earnings literature in that it identifies a context in which cash flow data possess significant incremental information content beyond that reflected in earnings. The research findings of this study also have methodological implications for other incremental information content studies. Specifically, it suggests that the informativeness of alternative information is an important factor in examining the incremental information of an accounting variable.</span>

Download Full-text

Capitalizing research & development and ‘other information’: the incremental information content of accruals versus cash flows

Journal of Management Control ◽

10.1007/s00187-011-0137-4 ◽

2011 ◽

Vol 22 (3) ◽

pp. 241-278 ◽

Cited By ~ 1

Author(s):

Tami Dinh Thi ◽

Wolfgang Schultze

Keyword(s):

Information Content ◽

Cash Flows ◽

Research Development ◽

Incremental Information ◽

Other Information

Download Full-text

Information Content of Earnings Managements: Implications on Growth and Value Companies

Journal of Accounting and Finance in Emerging Economies ◽

10.26710/jafee.v2i1.73 ◽

2016 ◽

Vol 2 (1) ◽

pp. 47-56

Author(s):

Windu Mulyasari ◽

Slamet Sugiri ◽

Heyvon Herdhayinta

Keyword(s):

Earnings Management ◽

Information Content ◽

Market Price ◽

Accounting Information ◽

Future Earnings ◽

Cycle Growth ◽

Incremental Information ◽

Growth Firms ◽

Management Behaviors

Objective: The purpose of this study is to investigate the pattern of earnings management on growth and value companies in Indonesia. This study predicts that earnings management has information contents. Therefore, earnings management tends to degrade the quality of earnings, then affect the future profitability. This study analyzes the effect of earnings management information content to the company's future profitability. This study provides an understanding about accounting information at certain market price levels for growth and value companies. Findings: Findings of this study indicate the differences between earnings management influence on growth and value companies. The results also support the differences of relative incremental information content of earnings management on growth and value companies. The growth firms tend to do earnings management and have higher profitability compared to the value firms. The implication is that the incremental information content of earnings management on growth firms is lower than those of the value firms to predict future profitability. Implication: The contribution of this research is to provide an in-depth review on earnings management study associated with company life cycle (growth and value), as well as to give additional understanding about the existence of incremental information content of earnings management. Thus, firms show different earnings management behaviors and ultimately those behaviors affect the quality of profit to predict future earnings

Download Full-text