Niclas Andrén
Head of the Department of Business Administration
Disappearing investment‐cash flow sensitivities: earnings have not become a worse proxy for cash flow
Author
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 U.S. 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
- Accounting and Corporate Finance
Publishing year
2020-01-14
Language
English
Pages
760-785
Publication/Series
Journal of Business Finance & Accounting
Volume
47
Issue
5-6
Document type
Journal article
Publisher
Wiley-Blackwell
Topic
- Business Administration
Keywords
- Investment
- financial constraints
- investment-cash flow sensitivity
- cash effectiveness
- cash flow
- earnings
- accruals
- G30
- G32
- M41
Status
Published
ISBN/ISSN/Other
- ISSN: 1468-5957