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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 paper aims to examine the association between earnings management and the value relevance of earnings (the latter is operationalized by earnings response coefficient). Specifically, this study examines whether opportunistic earnings management has a negative impact on the value relevance of earnings for a sample of firms listed on the Egyptian Stock Exchange.

Different from prior work and due to data limitations in the Egyptian market, this paper first examines for the existence of earnings management based on the whole operating performances of the firms by testing whether firms with low/poor operating performance are more likely to choose income-increasing actions (strategies) than firms with high operating performance. After confirming that low operating performance firms manage earnings upward, the authors then assess whether this opportunistic earnings management by these low operating performance firms reduces the value relevance of earnings. This is performed by estimating a model of the relationship between stock returns and accounting earnings with a dummy variable that allows parameter shifts for earnings of low operating performance firms.

The results show that discretionary accruals are positive and significantly higher for firms with low operating performance than those for firms with high operating performance. These results indicate that low operating performance firms increase the earnings management practices by probably increasing their reported earnings opportunistically to mask their low performance. Furthermore, the results show that the earnings response coefficient is significantly smaller for earnings of low operating performance firms than that for earnings of high operating performance firms. These results suggest that earnings of firms with low operating performance (that are engaged in opportunistic earnings management strategies) have less value relevance than earnings of firms with high operating performance, i.e. the informativeness of managed earnings is lower than that of non-managed earnings.

Based on these results, it is plausible that the presence of opportunistic earnings management adversely affects the value relevance of accounting earnings.

Consistent with previous results from developed countries, this study shows that earnings management is a significant factor that affects value relevance of earnings in Egypt.

Firms are concerned about earnings per share (EPS) dilution after equity issues. The purpose of this paper is to investigate whether firms manage upward their discretionary accruals around seasoned equity offerings (SEOs) to mitigate the impact of dilution on reported earnings.

The authors employ adjusted discretionary accruals from cash flow statements, normalized by the average common equity, in the multivariate tests.

There is evidence that SEO‐year discretionary accruals are the highest when contemporaneous operating cash flows are the lowest. Moreover, managers react to temporary rather than permanent declines in operating performance. Firms with the highest SEO‐year discretionary accruals experience the strongest improvements in post‐SEO operating cash flows. In addition, investors are not misled by the SEO‐year earnings management. There is no relation between the SEO‐year discretionary accruals and post‐SEO stock performance. Overall, these findings are consistent with the hypothesis that firms manage discretionary accruals around SEOs to mitigate the effect of temporary EPS dilution.

The paper's findings suggest that firms manage discretionary accruals during the SEO year to reduce the temporary negative impact of SEOs on operating performance measures, consistent with the EPS dilution hypothesis. Such earnings management makes earnings smoother and more predictable, improving earnings informativeness. The findings also suggest that misleading earnings management is not a common practice during the SEO year.

This paper adds to the literature questioning the evidence that managers frequently engage in misleading earnings management around corporate events. The authors provide an alternative explanation for earnings management around SEOs.

In response to recent concerns on earnings quality and a firm's fundamental performance, the purpose of this paper is to re‐examine salient questions under accrual accounting: how earnings quality affects the role of earnings and operating cash flows in a firm's valuation.

Using a large sample ranging from 1989 to 2008, the authors contrast the effects of three representative accrual‐based earnings quality measures on the association between earnings, operating cash flows and a firm's abnormal stock returns.

In the univariate analysis it was found that earnings explain returns similarly to operating cash flows. With control of earnings quality, the results indicate that earnings' role in explaining contemporaneous abnormal returns remains unchanged when earnings quality is better. Conversely, operating cash flows explain more contemporaneous abnormal returns when earnings quality is better. The findings could suggest that the market reacts to operating cash flows conditionally on earnings quality. Intriguingly, the results also indicate that the market perceives better earnings quality captures superior performance of operating cash flows rather than that of earnings. These findings are further fortified by additional analyses revealing that the earnings quality measure with control of operating cash flows affects the supplemental role of operating cash flows most.

The paper's findings provide insights on how the market processes firm value signals embedded in earnings quality, which have direct implications for regulators, standard setters, academics and practitioners.

The purpose of this study is to develop an index for financial constraints, specifically for restaurant firms, and to further validate the developed financial constraint index.

This study used logistic regression with a composite criterion based on the dividend payout ratio, KZ index and Cleary index to estimate restaurant firms’ financial constraints. Then, a fixed-effects regression was used to verify the validity of the measurement of restaurant firms’ financial constraints.

A restaurant firm’s operating profit, financial leverage, asset tangibility, sale of fixed assets and percentage change in number of employees are critical indicators for identifying financial constraints. The results indicated that in cases with positive operating cash flows, the effect of operating cash flow on capital investments continuously decreased as restaurant firms’ financial constraints increased.

This study is unique in that the specific financial and operational characteristics of restaurant firms were included in the model to determine financial constraint indicators, such as sale of fixed assets and percentage change in number of employees.

Highlights the operating cycle, its importance, and reviews basic relationships related to the cycle. In particular, it focuses on capital “flow through”, invested capital, capital at risk, and economic returns generated relative to capital employed. Reveals an amplification effect that results from improvements in the management of the cycle, that benefit traceable to a reduction in operating risk allowing incremental benefits from financial leverage. Suggests specific actions to take with respect to the cycle that will improve the value of your firm. Shows that small improvements in operating factors within the cycle yield amplified benefits to the firm. The discussion ignores taxes except in instances when tax effects are important. This does not detract from the discourse or conclusions. Reveals that increases in firm value that result from improved management of the operating cycle stem from several sources: greater levels of economic returns from operations; a reduction in operating risk; less capital invested and at lower risk; lower cost of capital; and increased tax benefit.

The operating activities section of the statement of cash flows presents a long-standing teaching challenge for accounting educators. The direct method is easy to understand yet difficult to prepare; the indirect method is harder to understand but easier to prepare. Many instructors address the two methods separately, requiring students to learn two different ways for preparing the operating section of a statement of cash flows. Because of this focus on the mechanics of preparation, the result is often an emphasis on how to prepare the cash flow statement rather than on the essential information the statement provides. In this paper, the authors note that both direct and indirect methods begin at the same point, that is, the income statement, and end at the same point, that is, cash flow from operations. Then, the authors describe one process by which the income statement and the balance sheet can be analyzed to provide the information required to present operating cash flow using either the direct or the indirect method. Using this approach allows students to apply one intuitive process for computing cash flow from operations rather than memorizing two different sets of rules for direct and indirect methods.

The purpose of this paper is to examine whether firms engage in earnings decreasing management before share repurchases to mislead investors or to smooth earnings and improve earnings informativeness.

The authors examine discretionary accruals and cash flows around open-market share repurchases. The primary discretionary accruals measure is industry- and performance-adjusted discretionary current accruals estimated from cash-flow data.

Results show that, firms experience temporary increases in operating cash flows and use negative discretionary accruals to smooth earnings before share repurchases. Firms with the highest pre-repurchase cash flows use the lowest pre-repurchase discretionary accruals. Moreover, pre-repurchase discretionary accruals reflect expectations about future operating cash flows. Firms with the strongest deterioration in operating cash flows after repurchases use the lowest pre-repurchase discretionary accruals. These findings suggest that repurchasing firms use earnings management to increase smoothness and predictability of reported earnings rather than to mislead investors.

This paper provides an alternative explanation to the finding of negative discretionary accruals before share repurchases. It adds to the literature on repurchases and earnings smoothing by showing that firms use earnings management around share repurchases to smooth earnings.

The purpose of this paper is to compare the value relevance of various accounting information disclosed in financial statements of manufacturing companies listed on the stock markets of Korea, Japan, and China over ten years from 2006 to 2015.

The study uses Ohlson (1995) valuation model for empirical investigation and the financial data extracted from the OSIRIS DB to analyze the enterprise value relevance of accounting information for Korean, Chinese, and Japanese companies and to investigate the differences among them.

The results of the empirical analysis are as follows. First, the coefficient of accounting earnings is the highest in the samples of all firms in Korea, Japan, and China, followed by the coefficients for operating income, net cash flow, book value, and net operating cash flows. Next, Japan has the largest book value, followed by Korea, but China has a negative value. Japan has the largest coefficient of accounting earnings and net operating cash flow, followed by Korea and China. Japan has the largest coefficient of net cash flow and operating income, followed by China and Korea. The results show that the value relevance of accounting earnings is the largest among independent variables related to firm value, but the net operating cash flow is the smallest. In addition, the authors observe that the coefficient of Japan is the largest of all independent variables when compared by country.

The contribution of this study is that it shows the comparative value relevance of accounting information in most economically developed Asian countries such as Korea, Japan, and China. In addition, it is worth showing the characteristics of the national value decision variable by showing different incremental value relevance levels among the three countries.

This paper examines the value relevance of operating cash flows in consideration of potential weaknesses in earnings quality in the context of a merger. When two firms merge, the earnings stream is altered reflecting the new entity that is created thus, making the prediction of future earnings challenging due to weaknesses in the quality of earnings. The quality of generally accepted accounting principle (GAAP) earnings, has recently been questioned by investors, analysts, and regulators. The difficulty with merged firm earnings has been exacerbated because, prior to June 2001, generally accepted accounting principles (GAAP) allowed firms to account for a merger using either the purchase or the pooling method of accounting. While the pooling method has been eliminated, this paper hypothesizes that difficulties arising from the purchase method of accounting will still exist and will continue to reduce the role of earnings in explaining security returns, and, consequently, the value‐relevance of operating cash flows is expected to increase as investors search for additional means to explain security returns. This paper finds that in the year of the merger, operating cash flows provide valuerelevant information beyond earnings. This finding supports the hypothesis that the quality of earnings in the year of the merger is difficult to interpret, and given this weakness, cash flows can aid in the explanation of abnormal security returns. Additional analyses indicate that the value‐relevance of operating cash flows is positively associated with the purchase method of recording the merger. This result is consistent with operating cash flows assuming a more important role in firm valuation when the difficulties in estimating the merged firm’s earnings are more severe. These findings also suggest that earning’s quality is more value relevant in a non‐merger year than in a merger year.