The Effect of Cash Flow Forecasts on Accrual Quality and Benchmark Beating
John M. McInnis
University of Texas at Austin - Department of Accounting
Daniel W. Collins
University of Iowa - Department of Accounting
October 28, 2010
Journal of Accounting & Economics, Vol. 51, pp. 219-239, April 2011
When analysts provide forecasts of both earnings and operating cash flow, they also implicitly provide a forecast of total operating accruals. We posit that this increases the transparency and the expected costs of accrual manipulations used to manage earnings. As a consequence, we predict and find that accrual quality improves and firms’ propensity to meet or beat earnings benchmarks declines following the provision of cash flow forecasts. We also predict and find that firms turn to other benchmark-beating mechanisms, such as real activities manipulation and earnings guidance in response to the provision of cash flow forecasts.
Number of Pages in PDF File: 52
Keywords: Earnings Management, Cash Flow Forecast, Analyst Forecast, Benchmarks
JEL Classification: G12, G29, M41, N20Accepted Paper Series
Date posted: August 8, 2006 ; Last revised: April 12, 2011
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.453 seconds