Intangible Investments, Scaling, and the Trend in the Accrual-Cash Flow Association

• 成果类型: Article
• 署名作者: Green, Jeremiah; Louis, Henock; Sani, Jalal
• 署名单位: Texas A&M University System; Texas A&M University College Station; Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park; University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12414
• 发表日期: 2022
• 页码: 1551-1582
• 关键词: market-value measurement; VALUE-RELEVANCE; ACCOUNTING EARNINGS; debt; valuation; returns; QUALITY

摘要

We provide evidence that the documented weakening of the accrual-cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible-intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.