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Real earnings management and the relevance of operating cash flows: A study of french listed firms

Real earnings management and the relevance of operating cash flows: A study of french listed firms The primary focus of this study is to investigate whether the level of earnings management through real activities (REM) affects the value relevance of reported cash flows from operations (CFO), precisely with regard to their ability to predict future CFOs. Using the data related to CAC all tradable listed French firms during 2008 through 2015, we provide evidence which supports the expected decrease in value relevance of reported CFO for future CFOs’ prediction in the presence of REM. Our finding highlights the fact that if managers decide to manipulate upward earnings through operating activities, they could adversely affect the information content of CFOs. More precisely, an aggressive deviation from normal activities leads to abnormal levels of the main operating inflows and outflows in an inconsistent way and this deteriorates the value relevance of cash flows from operations. This contribution is of use for creditors and investors and other key CFO users for prediction purposes as it urges them to make necessary adjustments when predicting the future ability of an entity to generate cash flows. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Disclosure and Governance Springer Journals

Real earnings management and the relevance of operating cash flows: A study of french listed firms

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References (55)

Publisher
Springer Journals
Copyright
Copyright © Springer Nature Limited 2020
ISSN
1741-3591
eISSN
1746-6539
DOI
10.1057/s41310-020-00091-0
Publisher site
See Article on Publisher Site

Abstract

The primary focus of this study is to investigate whether the level of earnings management through real activities (REM) affects the value relevance of reported cash flows from operations (CFO), precisely with regard to their ability to predict future CFOs. Using the data related to CAC all tradable listed French firms during 2008 through 2015, we provide evidence which supports the expected decrease in value relevance of reported CFO for future CFOs’ prediction in the presence of REM. Our finding highlights the fact that if managers decide to manipulate upward earnings through operating activities, they could adversely affect the information content of CFOs. More precisely, an aggressive deviation from normal activities leads to abnormal levels of the main operating inflows and outflows in an inconsistent way and this deteriorates the value relevance of cash flows from operations. This contribution is of use for creditors and investors and other key CFO users for prediction purposes as it urges them to make necessary adjustments when predicting the future ability of an entity to generate cash flows.

Journal

International Journal of Disclosure and Governance – Springer Journals

Published: Dec 16, 2020

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