The effects of financial statement and informational complexity on analysts' cash flow forecasts

• 成果类型: Article
• 署名作者: Hodder, Leslie; Hopkins, Patrick E.; Wood, David A.
• 署名单位: Indiana University System; Indiana University Bloomington; Brigham Young University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2008.83.4.915
• 发表日期: 2008
• 页码: 915-956
• 关键词: inference; accruals; cue; hypotheses; magnitude; validity; earnings; tests

摘要

We characterize the operating-activities section of the indirect-approach statement of cash flows as backward because it presents reconciling adjustments in a way that is opposite from the intuitively appealing, future-oriented, Conceptual Framework definitions of assets, liabilities, and the accruals process. We propose that the reversed-accruals orientation required in the currently mandated indirect-approach statement of cash flows is unnecessarily complex, causing information-processing problems that result in increased cash flow forecast error and dispersion. We also predict that the mixed pattern (i.e., +/-, -/+) of operating cash flows and operating accruals reported by most companies impedes investors' ability to learn the time-series properties of cash flows and accruals. We conduct a carefully controlled experiment and find that (1) cash flow forecasts have lower forecast error and dispersion when the indirect-approach statement of cash flows starts with operating cash flows and adds changes in accruals to arrive at net income and (2) cash flow forecasts have lower forecast error and dispersion when the cash flows and accruals are of the same sign (i.e., +/+, -/-); with the sign-based difference attenuated in the forward-oriented statement of cash flows. We also conduct a quasi-experiment to test our mixed-sign versus same-sign hypotheses using archival samples of publicly available I/B/E/S and Value Line cash flow forecasts. We find that the passively observed samples of cash flow forecasts exhibit a similar pattern of mixed-sign versus same-sign forecast error as documented in our experiment.