The Value Relevance of Direct Cash Flows Under IFRS

Clacher, Iain; Ricquebourg, Alan Duboisée de; Hodgson, Allan

doi:10.2139/ssrn.1939073

Cited by 3 publications

(6 citation statements)

References 3 publications

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“…(Flower, 1997;Zeff, 1998;Ball, 2001;Hope, 2003;Hope et al, 2006;Meulen et al, 2007;Ding et al, 2007;Soderstrom & Sun, 2007;Barth et al, 2008;Clacher, Ricqebourg, & Hodgson, 2013).…”

Section: Resultsunclassified

The Impact of the IAS/IFRS Adoption on the Predictive Quality of Discretionary Accruals: A Comparison between the French and the British Context

Olfa¹,

Hamadi²

2015

IJEF

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The purpose of this article is to study and compare the impact of the adoption of the international standards IAS/IFRS and the legal regime of a country on the pertinence of the discretionary accruals in terms of its quality of the prediction of future operating cash flows in two contexts: The French and United-Kingdom. The findings of our study prove that the adoption of these norms has clearly improved the predictive quality of discretionary accruals in the British context. In France, such effect has been demonstrated as significant and positive for both periods. The study of the impact of the IFRS norms on the predictive quality of discretionary accruals on the two European countries of our study shows that in the British context, the association between the discretionary accruals and the future operating cash flows is more important for the companies using the international norms than in those applying the British ones. In the French context, no significant association between the discretionary accruals and the IFRS has been verified. Next, our study has spread to see the impact of the legal regime on the predictive power of discretionary accruals before and after the adoption of the IAS/IFRS norms. The findings prove that the fullness of the association between the future operating cash flows and the discretionary accruals is stronger for the enterprises which are under the British context than those under the French one.

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“…(Flower, 1997;Zeff, 1998;Ball, 2001;Hope, 2003;Hope et al, 2006;Meulen et al, 2007;Ding et al, 2007;Soderstrom & Sun, 2007;Barth et al, 2008;Clacher, Ricqebourg, & Hodgson, 2013).…”

Section: Resultsunclassified

The Impact of the IAS/IFRS Adoption on the Predictive Quality of Discretionary Accruals: A Comparison between the French and the British Context

Olfa¹,

Hamadi²

2015

IJEF

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“…These two prior Australian studies report conflicting results as to whether direct cash flow components are incrementally important to investors. Clacher et al (2013) Prior Australian and U.S. research suggests that the operating cash flow components provided in the direct method more accurately predict the following year's cash flow relative to aggregate operating cash flow (Krishnan and Largay, 2000;Farshadfar and Monem, 2013). These findings are robust after controlling for operating cash cycle, industry membership, firm size and profitability.…”

Section: Theoretical Background and Hypothesesmentioning

confidence: 94%

“…Operating cash flow is disaggregated into five standardised cash flow components to assess the value relevant information provided by the direct method statement of cash flows (Livnat and Zarowin, 1990;Clinch et al, 2002;Clacher et al, 2013). All direct cash flows reported in the operating section of the direct method statement of cash flows are classified under these five standardised cash flow components.…”

Section: Modelsmentioning

confidence: 99%

“…Clacher, De Ricquebourg andHodgson (2013) show that the direct method is incrementally value relevant post IFRS, 2005 although they do not compare the direct and indirect method statement of cash flows. Importantly, Clacher et al (2013) show that cash flows and accruals are incrementally value relevant post IFRS, 2005. This result provides further impetus to compare the direct and indirect method given that cash flow and accrual information is incrementally important to company share valuation.…”

Section: Chapter 1: Thesis Introductionmentioning

confidence: 99%

“…The implementation of IFRS in Australia has changed the role that cash flows play in setting share prices and necessitates updated research in relation to direct operating cash flow components (Barth, Beaver, Hand and Landsman, 2005;Daske and Gebhardt, 2006;Daske, Hail, Leuz and Verdi, 2008). Clacher, De Ricquebourg and Hodgson (2013) find that the direct method is incrementally value relevant after the implementation of IFRS in 2005. Alternatively, this study provides a comparison between the direct and indirect method.…”

Section: Introductionmentioning

confidence: 99%

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The informational impacts of Australian listed companies reporting the direct or indirect method statement of cash flows: cash flow disclosure

Kent¹

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This thesis examines whether cash flow disclosure under International Accounting Standard (IAS) 7 has an influence on the degree of information asymmetry incurred by market participants. We evaluate the impact of cash flow disclosure for ASX (Australian Securities Exchange) listed companies and its association with value relevance, prediction of future cash flows, earnings and cost of capital. The following three essays in this thesis demonstrate that the type of cash flow disclosure reported by ASX listed companies can change the amount of information asymmetry experienced by investors. Essay 3 examines whether the choice of cash flow disclosure under IAS 7 has an influence on the cost of capital incurred by ASX listed companies. A matched pairs sample is created using replacement to assess whether cost of debt or equity is associated with cash flow disclosure.Companies reporting the indirect method on average pay a higher cost of debt by 100 basis points iii although this result is not significantly different from companies reporting the direct method.Company size and interest coverage are both significant at a 1 per cent level in explaining the cost of debt. Return on assets (ROA) and leverage are also significant at the 10 per cent level for cost of debt.Cost of equity is examined using the Capital Asset Pricing Model (CAPM) with no evidence to suggest that cash flow disclosure is associated with a company's cost of equity. Overall, Essay 3 demonstrates that the cost of capital incurred by ASX listed companies is not related to their choice of cash flow disclosure.iv

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The Informativeness of US Banks' Statements of Cash Flows

Gao

O’Hanlon

2015

SSRN Journal

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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.

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The Value Relevance of Direct Cash Flows Under IFRS

Cited by 3 publications

References 3 publications

The Impact of the IAS/IFRS Adoption on the Predictive Quality of Discretionary Accruals: A Comparison between the French and the British Context

The Impact of the IAS/IFRS Adoption on the Predictive Quality of Discretionary Accruals: A Comparison between the French and the British Context

The informational impacts of Australian listed companies reporting the direct or indirect method statement of cash flows: cash flow disclosure

The Informativeness of US Banks' Statements of Cash Flows

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