The Ability of Earnings to Predict Future Operating Cash Flows Has Been Increasing - Not Decreasing

34 Pages Posted: 16 Mar 2002

See all articles by Myungsun Kim

Myungsun Kim

SUNY at Buffalo

William Kross

State University of New York (SUNY) at Buffalo - Department of Accounting

Date Written: July 2002

Abstract

We investigate the relationship between earnings and future operating cash flows over the 1980s and the 1990s. Although the extant research indicates a weakening relationship between earnings and contemporaneous stock returns over time, we find that the relationship between earnings and future operating cash flows has increased over time. This result holds for older (surviving) firms and newer firms, dividend paying and non-paying firms, firms that earned profits or incurred losses, and for small and mid-sized firms. Large firms showed neither improvement nor deterioration. Out-of-sample predictions of operating cash flows shows increasing forecast accuracy over time for one, two, and three year-ahead cash flows.

Keywords: earnings, cash flows, cash flow forecasts

JEL Classification: G12, M41

Suggested Citation

Kim, Myungsun and Kross, William, The Ability of Earnings to Predict Future Operating Cash Flows Has Been Increasing - Not Decreasing (July 2002). Available at SSRN: https://ssrn.com/abstract=303283 or http://dx.doi.org/10.2139/ssrn.303283

Myungsun Kim

SUNY at Buffalo ( email )

Buffalo, NY 14260
United States
716-645-7900 (Phone)

William Kross (Contact Author)

State University of New York (SUNY) at Buffalo - Department of Accounting ( email )

Buffalo, NY 14260
United States

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