The Effect of Cash Flow Presentation Method on Investors' Forecast of Future Cash Flows

• 成果类型: Article
• 署名作者: Pornupatham, Sompong; Tan, Hun-Tong; Vichitsarawong, Thanyaluk; Yoo, G-Song
• 署名单位: Chulalongkorn University; Nanyang Technological University; Korea University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4406
• 发表日期: 2023
• 页码: 1877-1900
• 关键词: statement of cash flows; cash flow presentation method; knowledge structure activation; cash flow forecasts

摘要

The decision usefulness of the direct versus indirect presentation method of a cash flow statement has been a long-standing issue in both practice and accounting research. By capitalizing on comparative advantages of experimental methods, we provide insights into how investors process the information contained in different presentation methods tomake cash flow forecasts, especially in the context of various types of non-recurring items. We predict and find that, when nonrecurring accrued expenses are present, the indirect method leads to lower forecast errors by activating investors' underlying knowledge structures of operating cash flows in terms of an accrual (versus cash) basis. We also find that, in the presence of nonrecurring cash or nonrecurring accrued revenues, there is no difference in forecast errors between the indirect and direct methods. Moreover, we find that the combination of the direct and indirect methods (the direct-plus-indirect method) leads to lower forecast errors than the direct method, but it does not provide an incremental benefit for forecast accuracy beyond the indirectmethod.