Article1996

A Multivariate Time-Series Prediction Model For Cash-Flow Data.

127 citations0/0 files storedThe Accounting Review

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Abstract

Abstract This paper provides evidence on the time-series properties and predictive ability of cash-flow data. It employs a sample of firms on which the accuracy of one-step-ahead cash-flow predictions is assessed during the 1989--1991 holdout period. We develop a new multivariate, time-series prediction model that employs past values of earnings, short-term accruals and cash-flows as independent variables in a time-series regression. Our predictive results indicate that this mode! clearly outperforms firm-specific and common-structure ARIMA models as well as a multivariate, cross-sectional regression model popularized in the literature. These findings are robust across alternative cash-flow metrics (e.g., levels, per-share, and deflated by total assets) and are consistent with the viewpoint espoused by the FASB that cash-flow prediction is enhanced by consideration of earnings and accrual accounting data.

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References

1990Econometric Models and Economic Forecasts 1986The Association of Operating Cash Flow and Accruals with Security Returns 1977The Time Series of Annual Accounting Earnings 1986The Relative Information Content of Accruals and Cash Flows: Combined Evidence at the Earnings Announcement and Annual Report Release Date 1994The Ability of Earnings to Predict Future Earnings and Cash Flow 1990The incremental information content of cash-flow components 1979Univariate Time-Series Models of Quarterly Accounting Earnings per Share: A Proposed Model 1989The Nature and Amount of Information in Cash Flows and Accruals.

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