Cash flow prediction is an essential component of economic decision making, particularly in investment and credit evaluation. This paper examines the comparative predictive ability of earnings and operating cash flows variables on future operating cash flows within a developing economy's setting. Ordinary Least Squares (OLS) method is used to develop regression models over the period of 2002 to 2012. Current operating cash flows, as proxy for future operating cash flows, are regressed on past one, two and three years of earnings and operating cash flows as predictors. Results from the regression analysis reveals earnings and operating cash flows are significant in predicting future operating cash flows but have different predictive powers with earnings providing a superior comparative predictive ability on future cash flows. The paper therefore concludes that earnings are a better predictor of future operating cash flows than historical operating cash flows itself.
Purpose The purpose of this paper is to examine the potential use of international transfer pricing (ITP) as an income shifting mechanism by multinational corporations (MNCs) in developing countries. The paper postulates that income shifting through ITP is likely to be more pronounced in developing countries where weak institutions are present. Design/methodology/approach The paper uses a unique unbalanced panel data of 18 companies listed on the Ghana Stock Exchange covering the period of nine years (2008–2016), to investigate whether MNCs use ITP to shift income out of the country. The comparison is made using an indirect approach where performance (e.g. profit before tax) and post-performance measures (e.g. dividend payment) are used for an equal number of foreign and local companies. The empirical analyses include t-tests, pooled and random effects logistic regressions. Findings The results show significant differences between foreign controlled entities (FCEs) and Ghanaian controlled entities in terms of capability, profitability and dividend distribution. Since there is a positive between these measures, the results do not suggest possible income shifting by FCEs through ITP. Research limitations/implications This paper uses an indirect method of investigating income shifting among MNCs. For future studies, a more direct method can be adopted by examining import and export prices of specific products for both foreign and domestic firms. Originality/value The study investigates the possibility of income shifting arising from ITP practices among multinationals in developing countries. To the best of the authors’ knowledge, this paper is the first in this regard. Thus, the study contributes to the transfer pricing and income shifting literature by providing evidence from a developing country.
Synopsis The research problem This paper sought to ascertain whether IFRS adoption approaches impact accounting quality. Specifically, as some countries utilize IFRS without modifications while others modify IFRS to suit their local context, we aimed to test whether these differences in IFRS adoption approaches have implications for accounting quality. Motivation Prior studies focused on the impact of IFRS adoption on accounting quality without considering the different approaches used by the adopting jurisdictions. Such differences affect the version of IFRS utilized at the country level. We refer to jurisdictions as adopters of IFRS when the IASB’s version of IFRS is utilized without modifications. In contrast, jurisdictions where the IFRS standards are modified at the national or regional level are called adapters. We also recognize the role of enforcement; thus, we first examined whether IFRS adoption and enforcement influence accounting quality. Second, we compared the accounting quality for adopters and adapters of the standards. The test hypotheses Our first hypothesis is that the quality of enforcement has a stronger effect on accounting quality than the adoption of IFRS. Second, adapters will have higher accounting quality than adopters of IFRS. Target population We focused on the reporting of companies in African countries. These jurisdictions have not been sufficiently examined in prior studies. Adopted methodology We use panel data estimation, specifically, random-effects model. Analyses We examined accounting quality for pre- and post-IFRS reporting based on 3946 firm-year observations from six African countries over 18 years. Our analysis of the adoption approach is based on 3736 firm-year observations for companies utilizing IFRS. Except for Egypt, which used a modified version of IFRS, other countries in our sample utilized the IASB’s version of IFRS. Using various standard metrics for accounting quality (earnings management, timely loss recognition, and value relevance), we ascertained whether adaption is associated with higher accounting quality compared to adoption. Findings The results indicate that IFRS adoption and enforcement proxy are not associated with accounting quality, but other institutional factors are. Adoption of the standards is less important for accounting quality than the existing institutions. With regard to the adoption approach used, adopters demonstrated higher accounting quality for accounting-based measures, less income smoothing, and more timely loss recognition than the adapters. The adopters also exhibited greater value relevance, which suggests that their reporting was better able to capture information that affects firm value. The adoption approaches may influence different dimensions of accounting quality, and the resulting differences are important for users, companies, and standard setters to consider.
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