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Portrait of Niclas Andrén. Photo.

Niclas Andrén

Head of the Department of Business Administration

Portrait of Niclas Andrén. Photo.

Disappearing Investment-Cash Flow Sensitivities: Earnings Have Not Become a Worse Proxy for Cash Flow

Author

  • Niclas Andrén
  • Håkan Jankensgård

Summary, in English

According to a recent conjecture in the literature, earnings have become a poorer proxy for cash flow from operations over time. We find that since 1988, when cash flow statements started to be consistently reported in Compustat, the cash effectiveness of earnings has actually increased for a large sample of US manufacturing firms. This occurs despite the introduction of fair value accounting and increasing accounting accruals during the last three decades. Also contrary to the conjecture, using more comprehensive measures of cash flow does not restore the investment-cash flow sensitivity, which continues to be around 0.05 in more recent periods.

Department/s

  • Department of Business Administration

Publishing year

2017

Language

English

Document type

Conference paper

Topic

  • Business Administration

Conference name

Financial Management Association Annual Meeting 2018

Conference date

2018-10-10 - 2018-10-13

Conference place

San Diego

Status

Published