A Review of Academic Research on the Reporting of Cash Flows from Operations

67 Pages Posted: 4 Mar 2012 Last revised: 25 Oct 2015

Jeffrey Hales

Georgia Institute of Technology - Scheller College of Business

Steven F. Orpurt

Arizona State University; Singapore Management University

Date Written: February 13, 2012

Abstract

We provide a comprehensive review of academic research related to direct method cash flow presentation. While many financial statement users have stated a preference for the direct method, few accounting standard setters around the world have required it, and, given a choice, most entities present operating cash flows using the indirect method. Our review indicates that academic research has generally found direct method cash flow information to be decision useful. Also, research finds that direct method information is reflected in stock prices indicating that users appear to utilize this information when available. However, there are, as of yet, no studies detailing how this information makes its way into stock prices. Finally, the evidence we review suggests that direct method information is economically significant and that the recurring benefits than many firms derive from providing direct method information likely exceed recurring costs. Our review should be of interest to academics researching cash flow reporting and also to policy makers as they continue debating the merits of the direct method presentation of operating cash flows.

Keywords: Cash flow from operations, Direct method, Statement of cash flows

Suggested Citation

Hales, Jeffrey and Orpurt, Steven F., A Review of Academic Research on the Reporting of Cash Flows from Operations (February 13, 2012). Available at SSRN: https://ssrn.com/abstract=2014857 or http://dx.doi.org/10.2139/ssrn.2014857

Jeffrey Hales (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Steven F. Orpurt

Arizona State University ( email )

300 Lemon Street
PO Box 873606
Tempe, AZ 85287-3606
United States
480 965 2393 (Phone)

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

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