The impact of meeting or beating analysts' operating cash flow forecasts on a firm's cost of debt

Discussion of “Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?”

“…Debtholders thus emerge as prime candidates with an interest in forecasts about a firm's cash generating ability. Consistent with this argument, Edmonds, Edmonds, and Maher () find that cash flow forecasts affect debt financing: firms that meet or beat cash flows forecasts have higher bond ratings and lower bond yields, and are more likely to receive a rating upgrade.…”

Executive compensation and cash contributions to defined benefit pension plans

“…A DB plan contribution has no direct impact on current year's net income, but it reduces cash flows from operations. Several recent studies demonstrate an increased demand for information relating to firms’ cash flows from operations (e.g., DeFond & Hung, ; Givoly, Hayn, & Lehavy, ) and the adverse consequences of missing analysts’ cash flow forecasts (e.g., Edmonds, Edmonds, & Mahor, ; McInnis & Collins, ). As such, the board of directors and shareholders likely incentivize CEOs to increase reported cash flows from operations by rewarding CEOs reporting higher cash flows from operations with higher compensation.…”

Attitudes Of Chinese Listed Enterprises Toward Cash Flow Manipulation: A Resource Dependence Perspective

“…Operating cash flow can also improve the accuracy of investor forecasting (Hewitt, 2009;Waldron & Jordan, 2010). In particular, demand for detailed current year and forecasted cash flow information has increased since the exposure of the accounting scandals at Enron, WorldCom, and Qwest revealed that these organizations were engaged in obvious cash flow manipulations (Edmonds, Edmonds, & Maher, 2011).…”

“…As a result, more and more companies are intentionally increasing their degree of reporting on cash flow. However, increasing demand for detailed cash flow information and cash flow forecasts has resulted in accounting scandals involving cash flow manipulation (Edmonds et al, 2011).…”