Are Accruals Actually Less Persistent Than Cash Flows?

50 Pages Posted: 6 Apr 2023 Last revised: 2 Apr 2024

See all articles by André Aroldo Freitas De Moura

André Aroldo Freitas De Moura

FGV - EAESP

Fabio Yoshio Suguri Motoki

University of East Anglia (UEA) - Norwich Business School

Rafaela Modolo

FUCAPE Business School

Joseph Gerakos

Tuck School of Business at Dartmouth College

Date Written: March 29, 2024

Abstract

Prior literature finds that cash flows are more persistent than accruals. We show that this finding arises from empirical specifications that do not completely incorporate non-current accruals and do not fully account for accrual estimation errors. We develop a specification that addresses these two issues and then show that accruals are as persistent as cash flows. In addition, we develop and apply a general approach to empirically validate specifications of the accrual generation process. [Note: The Internet Appendix is available at https://osf.io/9fnhz.]

Keywords: persistence, cash flows, accruals, validation, net income, non-current accruals

JEL Classification: M21, M40, M41

Suggested Citation

De Moura, André Aroldo Freitas and Motoki, Fabio and Modolo de Pinho, Rafaela and Gerakos, Joseph, Are Accruals Actually Less Persistent Than Cash Flows? (March 29, 2024). Available at SSRN: https://ssrn.com/abstract=4398902 or http://dx.doi.org/10.2139/ssrn.4398902

André Aroldo Freitas De Moura

FGV - EAESP ( email )

São Paulo
Brazil

Fabio Motoki (Contact Author)

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

HOME PAGE: http://research-portal.uea.ac.uk/en/persons/fabio-motoki

Rafaela Modolo de Pinho

FUCAPE Business School ( email )

Joseph Gerakos

Tuck School of Business at Dartmouth College ( email )

Hanover, NH 03755
United States

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