The differential persistence of accruals and cash flows for future operating income versus future profitability

被引:61
作者
Fairfield, PM
Whisenant, S
Yohn, TL [1 ]
机构
[1] Georgetown Univ, Robert Emmett McDonough Sch Business, Washington, DC 20057 USA
[2] Univ Houston, CT Bauer Coll Business, Houston, TX 77004 USA
关键词
accrued earnings; growth; return on assets; earnings management; financial statement analysis;
D O I
10.1023/A:1024413412176
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
Prior research provides evidence that a higher proportion of accrued relative to cash earnings is associated with lower earnings performance in the subsequent fiscal year. The result has been widely interpreted as indicative of higher levels of operating accruals relative to cash flows foreshadowing a subsequent "earnings reversal," and thus signaling earnings management. We note, however, that earnings performance in prior studies is typically defined as one-year-ahead operating income divided by one-year-ahead invested capital, or a measure of profitability. We find that accruals are more highly associated than cash flows with invested capital in the denominator of the profitability measure. In contrast, accruals and cash flows have no differential relation to one-year-ahead operating income. The evidence is not consistent with accruals having a reversal effect on earnings. This suggests that the lower persistence of accruals versus cash flows may not be due to earnings management but may rather be due to the effect of growth on future profitability.
引用
收藏
页码:221 / 243
页数:23
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