The Differential Persistence of Accruals and Cash Flows&#x0D;
for Future Operating Income versus Future Return on Assets

Fairfield, Patricia M.; Whisenant, Scott; Yohn, Teri Lombardi

doi:10.2139/ssrn.320060

Cited by 57 publications

(58 citation statements)

References 18 publications

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“…Many subsequent studies have extended Dechow (1994) and Sloan (1996) by doing concise test of the persistence and pricing of the earnings, cash flows and accrual components of earnings (Subramanyam, 1996;Dechow, Kothari and Watts, 1998;Xie, 2001;Fairfield, Whisenant and Yohn, 2003;Richardson, Sloan, Soliman and Tuna, 2004;Dechow, Rechardson, and Sloan, 2004;Hanlon, 2005).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Many prior research shows that earnings persistence is more attributed to cash flow than accruals components of earnings, but they also report that market participants usually overact more on accruals than earnings in real investing (Sloan, 1996;Subramanyam and Wild, 1996;DeFond and Park, 2001;Xie, 2001;Beneish and Vargus, 2002;Fairfield, Whisenant and Yohn, 2003;Hanlon, 2005;Pincus et al, 2005).…”

Section: Introductionmentioning

confidence: 99%

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Earnings Persistence and Market Reaction: Evidence from Korea

Hong-Bok¹,

Geejung²

2010

IJBM

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Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Earnings Persistence and Market Reaction: Evidence from Korea

Hong-Bok¹,

Geejung²

2010

IJBM

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“…One stream of literature follows Sloan's lead in arguing that this result is attributable to accounting distortions (Xie 2001; Dechow and Dichev 2002;Richardson et al 2005). A second stream of literature argues that this result is attributable to a more general growth effect and that growth-related factors such as diminishing returns to new investment explain the lower persistence of accruals (e.g., Fairfield et al 2003a;Cooper et al 2005). We provide new evidence indicating that temporary accounting distortions are a significant contributing factor to the lower persistence of the accrual component of earnings.…”

mentioning

confidence: 99%

The Implications of Accounting Distortions and Growth for Accruals and Profitability

Richardson

Sloan

Soliman

et al. 2006

The Accounting Review

211

138

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: Following Sloan (1996), numerous studies document that the accrual component of earnings is less persistent than the cash flow component of earnings. Disagreement exists, however, as to the explanation for this result. One stream of literature follows Sloan's lead in arguing that this result is attributable to accounting distortions (Xie 2001; Dechow and Dichev 2002;Richardson et al. 2005). A second stream of literature argues that this result is attributable to a more general growth effect and that growth-related factors such as diminishing returns to new investment explain the lower persistence of accruals (e.g., Fairfield et al. 2003a;Cooper et al. 2005). We provide new evidence indicating that temporary accounting distortions are a significant contributing factor to the lower persistence of the accrual component of earnings. Our evidence indicates that the lower persistence of accruals extends to accruals that are unrelated to sales growth and that extreme accruals are systematically associated with alleged cases of earnings manipulation.

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“…2) a second stream attributes it to a more general growth effect and argues that growth-related factors such as diminishing returns to new investment explain the lower persistence of accruals (e.g., Fairfield et al 2003;Dechow and Ge 2006).…”

Section: Previous Evidence On Earnings Quality Measured By Accrualsmentioning

confidence: 99%

“…As for the second stream of literature, Fairfield et al (2003) suggest that the accrual effect in Sloan (1996) is at least partly due to the fact that accruals signify an increase in (less-productive) net operating assets. In this way, the author contributes to the discussion with a double point of view: accruals have effects both on income statements and balance sheets.…”

Section: Previous Evidence On Earnings Quality Measured By Accrualsmentioning

confidence: 99%

Accruals, cash flows and earnings in european privately held firms

Tapia

Fernández

2013

Pecvnia

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ResumenEste trabajo examina las propiedades de los ajustes al devengo, los flujos de caja y los resultados en las empresas europeas no cotizadas. A partir de varias hipótesis sobre la persistencia de los resultados y sus componentes, encontramos que las empresas no cotizadas parecen comportarse de forma diferente a la evidencia encontrada previamente sobre las empresas cotizadas. Las diferencias son significativas cuando los ajustes al devengo son extremos, dado que la persistencia del ROA y de los flujos de caja siguen patrones de comportamiento distintos a los encontrados en las empresas estadounidenses cotizadas. Pero contrariamente a nuestras hipótesis, las diferencias en la persistencia no son significativas cuando las empresas no cotizadas publican resultados positivos frente a resultados negativos. Palabras clave: Empresas no cotizadas; Propiedades del resultado; Ajustes al devengo; Flujos de caja. AbstractThis paper examines the properties of accruals, cash flows and earnings in European privately held firms. We start from several hypotheses about the persistence of earnings and its components, finding that private companies seem to behave in a different manner than the publicly traded firms tested in previous literature. As hypothesized, differences are significant when accruals are extreme, though in European private firms, persistence of ROA relative to cash flow follows a different pattern than in US public firms. But contrary to our expectations, differences in persistence are not significant when companies report positive versus negative earnings.

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The Differential Persistence of Accruals and Cash Flows for Future Operating Income versus Future Return on Assets

Cited by 57 publications

References 18 publications

Earnings Persistence and Market Reaction: Evidence from Korea

Earnings Persistence and Market Reaction: Evidence from Korea

The Implications of Accounting Distortions and Growth for Accruals and Profitability

Accruals, cash flows and earnings in european privately held firms

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