Persistence of Cash Flows in Firms Suspected of Manipulation

44 Pages Posted: 25 Jul 2023 Last revised: 3 Apr 2024

See all articles by Derek Oler

Derek Oler

Texas Tech University - Rawls College of Business

Joshua G. Coyne

University of Central Arkansas

Date Written: March 28, 2024

Abstract

Firms that are flagged as possible income manipulators have less persistent income, accruals, and cash flows when compared with non-flagged firms. The accruals persistence for flagged firms returns to the same level of accruals persistence for non-flagged firms after one year; however, cash flow persistence for flagged firms remains low for at least two years into the future, and average cash from operations remains lower for flagged firms at least 5 years into the future. In the year the firm is flagged the market estimates the persistence of cash flows at a level that roughly reflects their actual persistence but in the year after the firm is flagged the market underestimates the persistence of cash flows for those flagged firms. Overall, the market appears to slowly recognize the poor cash-generating potential of flagged firms.

Keywords: income manipulation, persistence, abnormal returns

JEL Classification: G14

Suggested Citation

Oler, Derek and Coyne, Joshua G., Persistence of Cash Flows in Firms Suspected of Manipulation (March 28, 2024). Available at SSRN: https://ssrn.com/abstract=4515366 or http://dx.doi.org/10.2139/ssrn.4515366

Derek Oler (Contact Author)

Texas Tech University - Rawls College of Business ( email )

P.O. Box 42101
Lubbock, TX 79409
United States
806-834-2354 (Phone)
806-742-3182 (Fax)

Joshua G. Coyne

University of Central Arkansas ( email )

201 Donaghey Ave.
Conway, AK 72035
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
57
Abstract Views
315
Rank
697,684
PlumX Metrics