The Relative Relevance of Cash Flow and Accrual Information for Solvency Assessments: A Multi-Method Approach

26 Pages Posted: 4 Oct 2003

See all articles by Divesh Sharma

Divesh Sharma

Kennesaw State University, School of Accountancy

Errol R. Iselin

Griffith University, Nathan Campus

Abstract

This multi-method study reports the results of two complementary experiments investigating the relevance of cash flow and accrual information. A behavioural field experiment investigated differences in the accuracy of solvency assessments between commercial lending managers using cash flow information and those using accrual information. Results indicated that commercial lending managers using cash flow information made more accurate solvency assessments than managers using accrual information. Results of an archival quantitative modeling experiment complemented these results and indicated cash flow information had incremental information content beyond accrual information. Our results confirmed the decision-usefulness of cash flow information and supported the mandate of the Statement of Cash Flows.

JEL Classification: M41, M44, G33

Suggested Citation

Sharma, Divesh Shankar and Iselin, Errol R., The Relative Relevance of Cash Flow and Accrual Information for Solvency Assessments: A Multi-Method Approach. Available at SSRN: https://ssrn.com/abstract=437912

Divesh Shankar Sharma (Contact Author)

Kennesaw State University, School of Accountancy ( email )

Kennesaw, GA 30144
United States

Errol R. Iselin

Griffith University, Nathan Campus ( email )

Kessels Road
Faculty of Commerce & Management
Nathan, Queensland 4111
Australia
+61 07 387 57112 (Phone)
+61 07 387 57760 (Fax)

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