The Informativeness of US Banks' Statements of Cash Flows
Journal of Accounting Literature (2019)
Posted: 24 Feb 2015 Last revised: 7 Mar 2019
Date Written: February 8, 2019
Banks, financial statement users, and accounting standard setters have long disagreed on the informativeness of banks’ statements of cash flows (SCFs) and there is a lack of relevant evidence in the literature. This paper examines the informativeness of the SCFs of U.S. commercial banks in two settings where SCFs are purported to be useful. The first analysis tests the incremental value relevance of banks’ SCFs beyond income statements and balance sheets and compares bank’s SCFs with those of industrial firms. We find that banks’ SCFs have limited incremental value relevance, and are much less value relevant than industrial firms’ SCFs. The second analysis examines and finds no distress-predictive power of banks’ SCFs, especially in the presence of standard distress predictors. Overall, our results are consistent with the view that banks’ SCFs have limited informativeness.
Keywords: statement of cash flows; banks; value relevance; distress prediction
JEL Classification: G21; M41
Suggested Citation: Suggested Citation