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The main aim of this study was to examine the earnings management behaviours, including both accrual-based and cash flow-based earnings management, of Chinese firms during the Global Financial Crisis (GFC).

A data set of 1,392 firm-year observations derived from a large sample of China's top listed firms (based on total assets) was constructed and investigated via univariate and ordinary least squares regression analyses.

Two distinct conclusions can be drawn from the results of the study. First, the top Chinese listed firms did engage in earnings management, as indicated by comparisons of the means of the absolute values of both accrual-based and cash flow-based earnings management indicators in the periods before and after 2008 when the GFC started. Second, investigation of earnings management directions revealed that in response to the GFC, the firms from construction-related industries and the airline industry manipulated earnings upwards through either accrual-based and/or cash flow-based earnings management activities. On the other hand, firms in the household durables industry engaged in earnings-reducing activities. These findings reflect the effect of the stimulus package launched by the Chinese Government in an effort to combat the GFC. In addition, the results indicate that firm characteristics such as size, leverage, profitability and growth affected the earnings management behaviours of the firms analysed in the study.

The empirically derived findings of this study contribute to the literature pertaining to the effects of the GFC on earnings management practices in China, which has remained relatively scant to date.

The main objective of this paper is to compare the ability of US-generally accepted accounting principles (GAAP) operating cash flows versus Iran-GAAP operating cash flows in predicting future cash flows.

The sample comprises 240 firms (1,200 firm-years) during the period from 2004 to 2008 for which operating cash flows and other variables are available. Cross-sectional and panel data regression models are used in testing the hypotheses.

This study finds that operating cash flows based on Iran-GAAP are no more effective in predicting future cash flows than those based on USA-GAAP, and the predictive ability of the model is improved by adding the earnings accrual components to the operating cash flows.

The study suggests that the Iranian accounting standard setting committee recommends that the statement of cash flows be prepared based on the three-category model instead of the five-category model in an attempt to converge with the International Financial Reporting Standards. Consistent with Financial Accounting Standards Board and financial analyst recommendations, the results reveal that earnings are a better predictor than cash flows from operations.

This study examines the effects of the accruals vs. cash flow bases on firm’s MB ratio as a proxy for shareholder value. The methodology utilizes the benefits of the ‘partial adjustment model’ where it addresses the extent to which the shareholder value adjusts to a target level. The final results indicate that (a) the accrual basis helps adjust the shareholder value to a target level more than the cash flow basis, (b) the shareholder value is associated with profitability‐related ratios and dividend‐related ratios, (c) in both bases, the shareholders value is positively associated with earnings per share and price‐to‐earnings ratio, (d) the significant effects of firm‐specific controls indicate that the shareholder value is affected by the accounting base in certain industries, certain size, and affected by the time as well. The results of the sensitivity analysis show that the accruals‐based estimates and cash flow estimates are robust and reliable.

This study examines the relationship between management compensation, earnings and cash flows. The preponderance of prior research reveals a substantial correlation between total earnings and compensation. However, the popular press indicates that many firms have switched to less traditional methods of awarding executive compensation. For example, Chrysler Corporation now bases substantial compensation on quality control in manufacturing while First Chicago bases compensation on the minimizing of loan losses. Because of their relatively high debt levels in the late 1980s, some firms are stressing cash flows in designing compensation plans. For example, the New York Times [2/25/90, p.29 in Section 3] reports that RJR Nabisco Inc. uses cash flows to compute the bonus pool while The Wall Street Journal [4/18/90, p. R26] indicates that board of directors often dump income‐based fixed compensation formulas in favor of performance goals such as cash flows. From a normative viewpoint, Holmstrom's [1979] analysis suggests that a performance evaluation scheme based on multiple signals is superior to one that is based on a single signal, provided the additional signals incorporate new information. Given these anecdotal reports indicating cash‐flow based compensation and the implications of existing theory, we explore the role of cash flows and working capital from operations in addition to total reported earnings in determining managerial compensation.

The objective of this paper is to empirically evaluate alternative multifactor explanations of cash‐flows and earnings momentum portfolios. It aims to examine whether the common risk factors, which are related to firm level accounting characteristics, can reflect the behavior of average portfolio returns based on such measures as cash‐flows and earnings momentum in the presence of each other's systematic components and time‐varying measures of volatility.

The paper uses monthly stock returns for all NYSE firms on CRSP database and constructs average portfolio returns between July 1951 and June 2008. It investigates the interdependence of stock returns for cash‐flows and earnings momentum portfolios using their systematic components. The methodology is implemented by extending various characteristic‐based factor models of returns.

The main finding of the study suggests that there is strong information transmission – both in the temporal variation and risk sensitivities of the average returns of cash‐flows and earnings momentum portfolios. Also, there is compelling empirical evidence that the associated systematic components well complement the ability of common risk factors to explain the temporal behavior of all NYSE stocks.

While the results are statistically significant, the effect of aggregate risk in factor model is dubious. An integration of other accruals based accounting characteristics would be an interesting issue to explore.

The goal of the paper is to examine how different combinations of empirically determined variables that are instrumental in the creation of style‐specific benchmarks can capture the time‐series variation of average portfolio returns. It will provide added value to scholars and investment professionals in making effective portfolio management decisions.

Compared to the existing literature, in the evaluation of earnings and cash‐flows based measures, the paper focuses on the predictive power of the systematic components. It shows that paying close attention to the systematic components clearly provides additional information about the time‐varying behavior of average stock returns. The findings that the economic characteristics of the firm can complement the comparative role of the systematic components of cash‐flows and earnings add significantly to the literature.

The purpose of this paper is to examine the relative and incremental information content of a cash recovery‐based measure of performance, the estimated internal rate of return, vs an earnings‐based measure of performance, return on assets, in explaining firms' economic performance.

The paper uses the cash recovery rate that is based on continuous time analysis and U‐shaped cash flows to derive the estimated internal rate of return and compare it to return on assets. A cross‐sectional sample was used over a short interval (year 1993 and year 2005) and a time‐series sample (1993‐2005) to empirically examine the relative and incremental information content of the competing measures. Tobin's q and stock returns are used as performance benchmarks.

The results of the empirical tests indicate that the estimated internal rate of return provides better relative and incremental information content over earnings‐based measures of performance. Specifically, the empirical evidence shows that the estimated internal rate of return is consistently positively related to Tobin's q and stock returns over all measurement intervals.

These results imply that earnings‐based performance measures are less value relevant compared to cash recovery‐based measures. There are some limitations that may apply to this study. First, the systematic measurement error in estimating the cash recovery rate may not be independent of the measurement error in the estimated internal rate of return. Second, the performance benchmarks used in the study are not free from problems. Particularly, the return on assets is influenced by firms' rate of growth and the Tobin's q is not a perfect measure of business performance. Therefore, one avenue of future research is to assess the usefulness of financial accounting data for analysts forecast. Moreover, future research may also examine the role of institutional changes in financial reporting and its effect on the quality of earnings and economic performance.

This paper presents extended research on cash recovery‐based vs earnings‐based metrics as proxies for economic return using improved research designs, larger samples and new sensitivity analyses.

This paper investigates the presence of the accrual and the cash flow anomalies in the New Zealand stock market for the period of 1987 to 2003. We observe insignificant evidence of the accrual anomaly but find strong evidence of the presence of the cash flow anomaly. However, from 1987 to 1992 – a period before the introduction of the Companies and the Financial Reporting Acts 1993 – the presence of the accrual anomaly was statistically significant suggesting that the introduction of the FRA had a significant impact on the occurrence of the anomaly. We observe further that firms with high discretionary accruals experience significant negative future stock returns. This evidence is consistent with the notion that managers of these firms engage in earnings management.

This paper aims to examine whether firms engage in earnings management immediately after experiencing a downgrade in their credit rating.

This paper uses fixed-effects regression models to examine real- and accrual-based earnings management after firms experience a downgrade in their credit rating.

Inconsistent with prior studies where firms are reported to opportunistically increase their earnings prior to a credit rating event, this paper finds that firms use income-decreasing earnings management after their ratings are downgraded. This paper also finds that firms downgraded to below the investment grade rating not only significantly reduce both abnormal cash flows and discretionary accruals but also report larger asset impairments, suggesting that these firms exploit the rating downgrade to employ a big bath accounting.

The results of this paper have practical implications for investors fixating on firm earnings after a credit rating downgrade, for shareholders of downgraded firms and regulators such as credit rating agencies.

The findings of this study contribute to the thin literature on earnings management after changes in credit rating by shedding lights on earnings management after a rating downgrade and complement the literature on the accounting choice of financially distressed firms. The empirical evidence documented in this study suggests that the occurrence of income-decreasing earnings management is not limited to only after a sovereign country rating downgrade as documented in a prior study but also occurs after a rating downgrade not associated with this event.

The purpose of this paper is to compare companies in a developing country with those of a first‐world country. For this purpose South African (SA) companies in the chemical, food and electronic industries are to be evaluated on the hand of cash flow ratios and compared with companies in the USA in similar industries.

Giacomino and Mielke proposed nine cash flow ratios for performance evaluation. Ratios were calculated for companies in the USA in the chemical, food and electronic industries for 1986‐1988. Industry norms were calculated for the period, indicating that the potential existed to develop benchmarks for the ratios by industry. Jooste calculated cash flow ratios for listed companies in SA, similar to those calculated by Giacomino and Mielke. The results of the SA companies were then compared with the US companies.

The comparison revealed some similarities and differences. The cash flow sufficiency ratio showed that the SA industries had enough cash to pay primary obligations, whereas the US industries did not. At the levels of cash generated by SA industries the investments in assets and dividend payouts were more than for US industries. The cash flow generated by assets used in SA is also more than that of the USA but US industries retire long‐term debt in a shorter period than SA industries.

The periods used in the comparison differ. Research using the same periods was not available. No information was available on the state of the economies in each country for those periods.

The work done by Giacomino and Mielke is to be recommended. Further studies on the utility of cash flow data would be necessary to develop a set of cash flow‐based ratios. Such ratios used in conjunction with traditional balance‐sheet and income statement ratios should lead to a better understanding of the financial strengths and weaknesses of a company.

By comparing industries of a developing country with those of a first‐world country one may have an indication of the performance of SA companies in a global market.

This paper aims to examine the valuation precision of composite models in each of six key industries in South Africa. The objective is to ascertain whether equity-based composite multiples models produce more accurate equity valuations than optimal equity-based, single-factor multiples models.

This study applied principal component regression and various mathematical optimisation methods to test the valuation precision of equity-based composite multiples models vis-à-vis equity-based, single-factor multiples models.

The findings confirmed that equity-based composite multiples models consistently produced valuations that were substantially more accurate than those of single-factor multiples models for the period between 2001 and 2010. The research results indicated that composite models produced up to 67 per cent more accurate valuations than single-factor multiples models for the period between 2001 and 2010, which represents a substantial gain in valuation precision.

The evidence, therefore, suggests that equity-based composite modelling may offer substantial gains in valuation precision over single-factor multiples modelling.

In light of the fact that analysts’ reports typically contain various different multiples, it seems prudent to consider the inclusion of composite models as a more accurate alternative.

This study adds to the existing body of knowledge on the multiples-based approach to equity valuations by presenting composite modelling as a more accurate alternative to the conventional single-factor, multiples-based modelling approach.