The browser you are using is not supported by this website. All versions of Internet Explorer are no longer supported, either by us or Microsoft (read more here: https://www.microsoft.com/en-us/microsoft-365/windows/end-of-ie-support).

Please use a modern browser to fully experience our website, such as the newest versions of Edge, Chrome, Firefox or Safari etc.

Portrait of Niclas Andrén. Photo.

Niclas Andrén

Head of the Department of Business Administration, Senior lecturer

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 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