The informativeness of U.S. banks’ statements of cash flows^✩

Abstract

Banks, financial statement users, and accounting standard setters have long disagreed on the informativeness of banks' statements of cash flows (SCFs) and there is a lack of relevant evidence in the literature. This paper examines the informativeness of the SCFs of U.S. commercial banks in two settings where SCFs are purported to be useful. The first analysis tests the incremental value relevance of banks' SCFs beyond income statements and balance sheets and compares bank's SCFs with those of industrial firms. We find that banks' SCFs have limited incremental value relevance, and are much less value relevant than industrial firms' SCFs. The second analysis examines and finds no distress-predictive power of banks' SCFs, especially in the presence of standard distress predictors. Overall, our results are consistent with the view that banks' SCFs have limited informativeness.

Financial performance and cash flow: Evidence from the US banking industry

“…Furthermore, our results can form a useful practical selection tool for investors trying to detect banks with the strongest indicators of financial performance, which may reward them with more generous dividend payouts and, possibly, higher stock returns. Finally, our study can be relevant when assessing the causes of the recent collapses in the banking industry of the United States, that is, the failures 2 In fact, as reported by Gao et al (2019), banks argue that, unlike the cash flow statements of industrial companies, the relevant statements of banks provide little additional information because banks deem that cash flow is not a useful measure of the operating performance or the financial condition for them. Banks also argue that the distinction between cash flow from operating, investing and financing activities is not as meaningful for them as it is for industrial companies.…”

“…In addition, to the best of our knowledge, most studies dealing with cash flow management in the banking industry of the United States focus on the information value of the cash flow statements of banks compared to the relevant value for the manufacturing and other non-financial companies (e.g. Mulford and Comiskey, 2009;Gao et al, 2019). 2 Therefore, our study is quite novel because it deals with the relationship of financial performance with cash flow in the banking industry of the United States, an issue that is under-researched.…”

Analysts’ perceptions of cash flow reporting: earnings reliability, confidence and implications for evaluating firm performance

“…A contrasting perspective is that analysts may not perceive less forecasting accuracy or earnings quality consequences under IM disclosure because they incorporate many sources of information (earnings conference calls, management forecasts, specific industry indicators, economic and industry conditions) into their forecasts (Ball and Sadka, 2015;Gao et al, 2019). These information sources could override or substitute for the potential information loss under the IM format.…”

Operational Cash Flow Analysis of PT Waskita Beton Precast Tbk Financial Performance 2014-2018

“…The cash flow statement is a financial report that contains information about the company's cash outflows and inflows in one accounting period. The categorizes cash flows as relating to operating, investing, or financing activities [2]. The cash flow statement can be used as an indicator of whether the company can finance all its operating activities using existing capital, or the company is forced to use loans to finance the entire company's operations.…”