Predictive Ability of Earnings and Cash Flows: Evidence from Turkish Firms Cash Flow Statements that Prepared by IAS 7

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1 Journal of Money, Investment and Banking ISSN X Issue 25 September, 2012 EuroJournals Publishing, Inc Predictive Ability of Earnings and Cash Flows: Evidence from Turkish Firms Cash Flow Statements that Prepared by IAS 7 Rabia Aktaş Assist. Prof Accounting and Finance Department Celal Bayar University, Manisa, Turkey rabia.aktas@cbu.edu.tr Tel: ; Fax: Sibel Karğın Assist. Prof Accounting and Finance Department Celal Bayar University, Manisa, Turkey karginsibel@yahoo.com Tel: ; Fax: Abstract Recently, cash flow statements have increasingly been interest of many researchers. This interest has been focused on the relationship between cash flows of firms and other components of firms such as valuation, stock price changes, earnings, and prediction of future cash flows. The aim of this study is to investigate the accounting data in explaining future cash flows of Turkish firms that are listed in Istanbul Stock Exchange (ISE) during This is achieved by setting an empirical framework that measures whether earnings or cash flows are better predictors of future cash flows. Additionally we have focused on effects of firms specifications such as sign of cash flows, size of assets, and liquidity period on predicting cash flows. Our results indicate that cash flows are significant predictors of future cash flows of selected firms compared to earnings. These results contradict FASB s exert that earnings have better predictive ability to determine future cash flows. Keywords: Predictive Ability of Cash Flows, Earnings, Cash Flow Statements, IAS 7. JEL Classification Codes: M40, M41 1. Introduction One of the most important sources of identifying cash flows of a firm is the cash flow statement. A cash flow statement provides information about sources of cash flows and where those cash flows are being used. Cash flow statement has a great importance for supplying the information needed by stakeholders for decision making process about the firms cash sources and how the sources are being allocated. As a matter of fact, in the late 1980s and early 1990s, many accounting bodies across the world adopted cash flow statements as a replacement for traditional statements of changes in financial position (Garrod and Hadi, 1998).

2 Journal of Money, Investment and Banking - Issue 25 (2012) 172 Cash flow statements and the reporting requirements of cash flows have increasingly been interest of many researchers lately. This interest has mostly been focused on the relationship between cash flows of firms and other components of firms such as firms performance, valuation, stock price changes, earnings, and prediction of cash flows. Information provided by the cash flow statement is expected to help stakeholders to asses in their decisions. A firm s ability to generate cash flows may affect firm s value or shareholder s value. It can be said that firms that have steady flow of cash from solid financial sources such as from their operations may increase investors interest on their stocks. Therefore a cash flow statement must be presented in a form that provides useful information to its users, namely to the investors, shareholders, managers, and other stakeholders. In fact, the International Accounting Standards Board (IASB) and International Financial Reporting Standards (IFRS) emphasize that one of the main purposes of financial reporting is...providing information that is useful in making economic decisions. The Board believes that financial statements prepared for this purpose meet the common needs of most users. This is because nearly all users are making economic decisions, for example: to decide when to buy, hold or sell an equity investment and to assess the stewardship or accountability of management (The Conceptual Framework for Financial Reporting, A24). Inflow of cash is an important aspect in valuation models for creditors to assess firm s ability related the execution of financial obligations (Al-Attar and Hussain, 2004). In another words, one of the firm s dept capacity and credibility may be determined by the criteria of its future cash flows. Solid cash flows may help firms for more funding at lower cost and proper terms. As a matter of fact cash flow structure could be considered in assessing firms solvency as well. Positive cash flows from operations could positively affect coinsurance situation during borrowing funds. Future cash flows may be an important bargaining power during calculating firm s value and increase premium or goodwill during exchanging stocks on the market as well. Especially future cash flows may play a critical role during mergers and acquisitions process. Acquired firms premium that is paid by the acquirer somehow should contain the effects of the future cash flows. The value relevance of accounting data is always the main issue for financial statements users and standard setters of those statements. Researchers have focused mostly on earnings to investigate the usefulness of accounting variables. Lately more studies have examined the value relevance of components of earnings, such as cash flows and accruals (Garrod et al., 2003: 2). The Financial Accounting Standards Board (FASB) and the International Accounting Standards Committee (IASC) have both asserted, without proof, that accrual accounting (earnings) information is a better predictor compared to reported cash flows in respect to the ability of firm s generating future cash flows (Seng, 1997: 8; Greenberg et al., 1986). However, researchers have contradiction about the prediction of future cash flows; some researchers have reported that past earnings are better predictors of future cash flows while others have concluded that cash flows are significant predictors of future cash flows. Moreover, some studies have found out that compared to other predictors such as earnings and accrual components of earnings, cash flows are almost the best predictors of future cash flows. Al-Attar and Hussain (2004: 863) state that although cash flow statements were adopted by accounting standards boards to help users better assess future corporate cash flows, these bodies assert that cash flow statements alone are not enough (IFRS1, Appendix III, para. 4, p. 291). The reason is that cash flow statements may contain flows from prior periods and flows belonging to future periods so that the cash flow statement, profit and loss account, and balance sheet should be used together when making an assessment of future cash flows. The current study investigates the power and ability of past earnings and cash flows itself to predict future cash flows of listed public firms and industries selected from Istanbul Stock Exchange. Additionally we have focused on effects of firms specifications such as sign of cash flows, size of assets, and liquidity period on predicting cash flows.

3 173 Journal of Money, Investment and Banking - Issue 25 (2012) 2. Literature Review Researchers have examined cash flows and cash flow statements in various ways. Although cash flows are meaningful when assessed with other accounting disclosures, it can be seen that it is important in firms valuation models, credibility, predictions of profitability and solvency issues, and predicting future cash flows itself. Whether cash flows or past earnings are powerful to predict future cash flows is at the center of most studies about cash flows of firms. As it is expected, two sides of that argument have its own results to prove their ideas. Although some studies show that changes in earnings are better indicators of stock price changes, the question of do earnings or reported cash flow measures better predict future cash flows is being discussed in many studies (Seng, 1997: 2). The arguments related cash flows and its effects on the other components of accounting data or firm variables such as stock prices, earnings, solvency, etc. have been going on and there is a controversy about that issue in the literature. Relation between stock price changes and cash flows has been discussed by Ball and Brown (1968) and Beaver and Dukes (1972). The researchers have examined whether cash flows and earnings changes are related to stock price changes. Both studies have concluded that stock prices are highly associated with earnings changes in respect to cash flows changes. Empirical studies have reached mix results related to predictive ability of earnings and cash flows. Seng (1997) states that cash flow measures are better predictors of future cash flows than earnings. Additionally, results of Greenberg et al. (1986) s study are consistent with the FASB s contention 1 that current earnings are better predictors of future cash flows. Zheng (2003: 16) analyses some studies that present contradictory results. For instance, Bowen et al. (1986) reach results that are not consistent with FASB s assertion. Finger (1994) finds out that while cash flows are better predictors in short horizon, the results do not differ significantly over longer horizons. Dechow et al. (1998) also argue that current earnings components are the best predictors of future cash flows and their result is consistent with their prediction. Barth et al. (2001) believe that the link has not been clearly explained. Therefore they break down accrual components into six major components (change in accounts receivable, change in inventory, change in accounts payable, depreciation, amortization, and other accruals) to asses their prediction ability on future cash flows and they find that breaking down significantly enhances the predictive ability of earnings. Chotkunakitti (2005) states that past earnings, cash flows, cash flow and accrual components of earnings could be used to predict future cash flows of Thai listed companies. The results of the study state that cash flows have better predictive power than past earnings. The model of past earnings can not predict as much as the cash flow model and the cash flow and accrual components of earnings. In addition to that, the cash flow model is a better predictor of future cash flows than the other models. On the other hand, the study finds out that cash flow ratios are not strong predictors of future cash flows and Asian economic crisis had an impact on the predictive power of accounting data. Al-Attar and Hussain (2004: 868) indicate that recent studies are focused on the usefulness of accounting data for predicting future cash flows by using price-based proxy variables for future cash flows (e.g. stock returns, CARs, price levels). Especially this approach can be seen in prior UK works (e.g. Board et al., 1987; Board and Day, 1989; Ali and Pope, 1995; Clubb, 1995; McLeay et al., 1997; 1 In its Statement of Financial Accounting Concepts (SFAC) No. 1, the FASB emphasizes the usefulness of reported earnings to investors and creditors in making rational investment and credit decisions because current earnings is a better indicator of a firm's future cash flow than is its current cash flow. In other words, according to the FASB, a primary objective of financial reporting is to: provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash flows to the related enterprise. [1:17-18] This objective, according to the FASB, can best be met by providing earnings, rather than cash flow, information: Information about enterprise earnings based on accrual accounting generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows than information limited to the financial effects of cash receipts and payments. [l:ix] Thus the FASB concludes that "the focus of financial reporting is information about earnings and its components." (Greenberg et al., 1986: 266).

4 Journal of Money, Investment and Banking - Issue 25 (2012) 174 Charitou and Clubb, 1999; and Garrod et al., 2000). This approach indicates some assumptions about capital markets working process. One of the assumptions is that prices reflect expectations about firms future cash flows, as financial theory asserts. Another assumption is that information relevant to cash flow assessment is impounded in prices in an efficient manner. As we see, those studies follow indirect approach as using proxies. In fact, some US studies questioned 2 this indirect approach and instead of proxies they have examined actual cash flow data. There are discussions that direct method (DM) cash flow statements provide more useful information to financial statement users compared to indirect method (IM). Orpurt and Zang (2009) 3 state that since FASB, IASB, and CFA Institute encourage DM presentation and there are limited evidence and studies about DM advantages, they were motivated to investigate outcomes of this approach. In their detailed study researchers basically investigated DM cash flow statements performance in predicting future compared to popular indirect approach. They concluded that DM statements mitigate articulation errors, enhance forecasts of operating cash flows and earnings, and reflect more future performance in current stock returns. Zheng (2003: 16) indicates that although the common use of predictive ability of recent studies, there are several questions about this approach. The first one is that interpretation of the approach is not clear. The studies that focused on the predictive ability do not use same methods and models. These studies use simple or complicated models, examine different forecasting horizons and criteria (R 2 or properties of forecasting errors) so that it is difficult to reach common results across studies Turkish Accounting Standard (TAS) No. 7. Turkish Accounting Standards Board translated IFRS into Turkish in 2006 and public companies are required to prepare and present their financial reports based on IFRS, which are accepted as Turkish Financial Reporting Standards (TFRS) or Turkish Accounting Standards (TMS) for the standards issued prior to The Board is translating newly adopted standards instantly and prepares education modules for accounting professionals. Principles of cash flow statements are designed by Turkish Accounting Standard (TAS) No. 7. Preparation of Financial Statements Standard (TAS 1) has also set cash flow statement as a part of mandatory financial statements set. 2 Al-Attar and Hussain (2004, p.869): Barth et al. (2001, p. 30): We focus on the implications of cash flow and the accrual components of earnings for firms expected future cash flows rather than for firms share prices for two primary reasons. First, cash flow predicting is fundamental to assessing firm value as reflected in share prices. Thus, cash flow is a primitive valuation construct Second, prior research provides evidence that share prices fail to reflect accurately the differential persistence of accruals and cash flow. 3 (Orpurt and Zang, 2009: 894) Both FASB standards and IASB standards allow either the DM or IM format, but both encourage DM presentation. A joint IASB and FASB research initiative in 2005 identified DM statements of cash flows as a pertinent, timely research topic important to standard setters. Further, a CFA Institute monograph on financial reporting for investors (CFA Institute 2005) lists DM statements of cash flows as one of 12 significant reforms needed to improve financial reporting. It emphasizes that DM cash flow components are needed by investors to forecast a firm s future cash flows. The CFA Institute notes that most firms provide insufficient information for even a skilled analyst to reconstruct DM components, concluding that estimating DM components greatly reduces the reliability and usefulness of the information generated (CFA Institute 2005, 27). Despite CFA Institute, IASB, and FASB stated preferences for DM statements, the vast majority of firms currently disclose the IM statements of cash flows. Current knowledge about DM disclosures is supported by only a few studies, including Krishnan and Largay (2000), Cheng and Hollie (2008), and Clinch et al. (2002). While all conclude the DM is useful, these studies offer limited empirical evidence applicable to U.S. firms due to various research design choices.

5 175 Journal of Money, Investment and Banking - Issue 25 (2012) 3. Methodology 3.1. Sample Selection and Data The study covers 172 firms that are listed in Istanbul Stock Exchange for the years (period 1) and (period 2). We have analyzed financial statements of listed firms for the years 2008, 2009, and 2010 to reach cash flows, earnings, and the other data for the covered periods. The selected firms reported their cash flow statements by Turkish Accounting Standard (TAS) No. 7. The models are designed based on actual data, actual operating cash flow and earnings. Additionally we have attempted to test our models based on the industries and other variables like sign of cash flows, asset sizes, liquidity, and so on. Our data set consists of eight industries as listed in Table 1, for three periods. The industries are sequenced by the numbers to be easily discussed in the analysis. Table 1: Number of Firms by Industry Industry Number of firms (1) Food and beverage 20 (2) Textile and clothing 20 (3) Publication, paper, and printing 16 (4) Petroleum and coal 21 (5) Non metallic mineral products 25 (6) Metal main industry 12 (7) Metal products 25 (8) Service 33 Total Models In this study first of all we have investigated the predictive ability of cash flows and earnings in predicting future cash flows of the listed firms. For this purpose, we have designed three models for two financial periods ( and ) and compared the results of those two financial periods. Table 2 presents the models designed and applied for the stated purpose. Table 2: Regression Models Model I FCFOt 1 1CFOt 1 ( , period 1) Model II FCFOt 2 2NEt 1 ( , period 2) Model III FCFOt 3 3CFOt 1 4NEt 1 ( and , period 3) The first model is measuring future cash flows or future operational cash flows ( FCFO t ) of selected firms by cash flows from their operations CFOt 1 itself, while the second model is doing that by the earnings, NE t 1. Finally, the third model is predicting future cash flows by two variables; operating cash flows and earnings. Model III is presenting how two variables are explaining future cash flows together compared to one-variable models. This method was used by Aktaş (2009) to see second variable s explanation power for Turkish listed firms during the period of The researcher s method is adapted to Model I and Model II as we have calculated coefficient of cash flows 2 and earnings ( R 1 and 2 2 R 2 ). For Model 3, we have calculated ( R 3 ). Finally we have calculated marginal prediction power (MPP) of cash flows and earnings: 2 2 MPP R R E CFO 3 1 MPP R R

6 Journal of Money, Investment and Banking - Issue 25 (2012) 176 Second of all, we have focused on selected industries (presented in Table 1) to find out which model (presented in Table 2) provides a better prediction component for the listed industries for the same period ( ). Lastly, we have focused on the firms specifications. We have investigated the predictive power of sign of cash flows (positive-negative cash flows), asset size, liquidity period, and operation cycle in predicting future cash flows of firms. In order to see the effects of sign of cash flow, we have divided firms into two groups where 42 firms of 172 have positive sign and the rest have negative. For the asset size, firms are sequenced from small to big size based on the median. 4. Results Our results can be specified into four groups; prediction power of current cash flows and earnings on future cash flows of firms; prediction power of current cash flows and earnings on future cash flows of industries, the power of firm specifications to predict future cash flows, and marginal prediction power of current cash flows and earnings on the future cash flows of firms Cash Flows-Earnings and Prediction of Firms Future Cash Flows Table 3 summarizes regression results of three models for three different financial periods for listed firms. Table 3: Regression Results Model Period CFOt-1 Et-1 β 1 t 1 β 2 t 2 R 2 F I II III Model I is statistically significant for all periods. Results for period 1 (R 2 = 0.72) state that cash flows of a firm (CFO) significantly predict its future operational cash flows (FCFO). However, the model s predictive ability is low (R 2 = 0.15) for period 2 compared to other two periods. Model II measures predictive ability of earnings on firm s future cash flows. Results indicate that earnings have low predictive ability to determine future cash flows. In fact, in period 2 earnings have the lowest prediction power. However it should be indicated that in period 1 earnings significantly predict future cash flows. Additionally, the results show that per amount increase in net income increases future cash flows by 56% in period 1, 35% in period 2, and 45% in period 3. However, Model II explains that only average of 20% of increase is caused by earnings. Model III shows that adding earnings to the model results slightly higher R 2. So it can be said that per changes of earnings in period 1 affects only 12% of future cash flows while previous cash flows affect 78% of future cash flows. When we compare the models we see that cash flows of firms itself are better prediction variable for determining future cash flows. Although Model III in terms of adjusted R 2 has strong predictive ability of future cash flows, Model I statistically is the most significant. Since the period 2 covers financial period, actually accounting data of that period occurs in 2008, the year of financial crisis. So, 2008 financial crises may be one of the causes of low prediction ability of future cash flows in that period. As a matter of fact it can be seen that cash flows

7 177 Journal of Money, Investment and Banking - Issue 25 (2012) are better predictors of future cash flows in period 1 (72%) compared to earnings (31%). However, in period 2, financial crisis produced the financial statements and predicting power of future cash flows is 15% for cash flows while it is almost 12% for earnings. Those two last statements also support the idea of financial crises may be a reason that cash flows prediction ability on future cash flows is negatively affected. As stated in Table 3, coefficients of models indicate that future cash flows of listed firms can strongly be predicted by their own current cash flows while earnings has weak power of prediction. For example, in Model III, prediction abilities of future cash flows, as indicated by the cash flows and earnings coefficients, are 0.78 and 0.12 for period 1, 0.33 and 0.26 for period 2 respectively Cash Flows-Earnings and Prediction of Industries Future Cash Flows As it is shown in Table 1, there are eight industries to be investigated whether prediction ability of cash flows or earnings is a better determinant of industries future cash flows. Results of three models are summarized in Table 4. As it is stated in Table 4, specifically Model I explains that cash flows of Food and Beverage industry is a better determinant of industry s future cash flows with 1% statistically significant result. Compared to other two models, it fits to the industry well. However, we cannot say the same thing for the industry 2 and 3. Specially, for industry 3, Publication, Paper & Printing, earnings have significant prediction power for predicting future cash flows with 1% statistically significant result. As we closely follow the Model I for the rest of the industries, cash flows of industries predict their own future cash flows better or at least almost equally compared to earnings. Table 4: Prediction of Future Cash Flows by Industries Industry Model CFOt-1 E t-1 β 1 t 1 β 2 t 2 R 2 F I (1) Food & II beverage III * I * * (2) Textile & II * * clothing III * * * I (3) Publication, II paper & printing III I (4) Petroleum & II * * coal III * I (5) Non metallic II * mineral products III I (6) Metal main II * * industry III * * I (7) Metal II products III * I (8) Service II III * * statistically insignificant

8 Journal of Money, Investment and Banking - Issue 25 (2012) Firms Specifications and Prediction of Future Cash Flows In this stage we have focused on predictive power of sign of cash flows (positive-negative cash flows, S), asset size (AS), liquidity period (LP), and operation cycle (OC) in future cash flows of firms. Listed firms are divided into two groups where 42 of 172 firms have positive signs and the rest have negative. Firms are sequenced from small to big size based on the median. Results are stated in Table 5. Panel A of Table 5 presents the firms that have negative sign of cash flows, shorter size of assets, and lower liquidity period and operation cycle, while Panel B states the opposite specifications of the firms. As it is shown in the table, when Panel A and B are compared, positive cash flows predict future cash flows of the firms better based on F statistics. Same results can be drawn for the asset size, liquidity period, and operations cycle specifications as well. The bigger asset size firms future cash flows can be predicted better by their current cash flows. Shorter liquidity period and operation cycle firms current cash flows significantly predict their future cash flows. Table 5: Firms Specifications and Prediction of Future Cash Flows (i) SIGN OF CASH FLOWS (S) (ii) ASSET SIZE (AS) (iii) LIQUIDITY PERIOD (LP) (iv) OPERATION CYCLE (OC) PANEL A R 2 F R 2 F R 2 F R 2 F Model I * * Model II * Model III * PANEL B Model I Model II Model III * Statistically insignificant 4.4. Marginal Prediction Power of Current Cash Flows and Earnings (MPP) As it can be seen so far, although current cash flows are significantly powerful variables to predict future cash flows, earnings can be better predictive component in some models that we have developed. In order to detect marginal prediction power (MPP) effects of those two variables, we need to run another regression. Results are presented in Table 6. The table presents MPP effects on three perspectives. These effects are focused on MPP and the periods, MPP and the industries, and finally MPP and firms specifications. Table 6: Marginal Prediction Power of Current Cash Flows and Earnings MPP NAK MPP NK Period Industry (1) (2) (3) (4) (5) (6) (7) (8) (i) (ii) (iii) (iv) (i) (ii) (iii) (iv) Panel A B

9 179 Journal of Money, Investment and Banking - Issue 25 (2012) First of all, current cash flows variable for the industries is a strong prediction variable, except for industry 2, marginal prediction power effect changes from 4% to 60% where the average is 32%. Based on the periods, cash flows prediction power is significant to predict future cash flows. Secondly, while marginal prediction power of earnings is significant for the periods, it is statistically insignificant for the industries except for industry 3. Marginal prediction power varies from 2.6% to %. Finally, earnings are statistically significant while cash flows are significant in the rest of the firms specifications, except in Panel A (ii). 5. Conclusion The value relevance of accounting information is always among the main topics of financial statement users and standard setters of those statements. Researchers have focused mostly on earnings to search the usefulness of accounting variables. However, many studies have investigated the value relevance of components of earnings, such as cash flows and accruals. The FASB and the IASC have both asserted, without proof, that accrual accounting (earnings) information is a better predictor compared to reported cash flows in ability of firm s generating future cash flows (Seng, 1997: 8; Greenberg et al., 1986). However, researchers have contradiction about prediction of future cash flows. Some researchers have concluded that past earnings are better predictors of future cash flows while others have reached the conclusion that cash flows are the significant predictors of future cash flows. Moreover, some studies have found out that, compared to other predictors such as earnings and accrual components of earnings, cash flows are almost the best predictors of future cash flows. This study investigates the power and ability of past earnings and cash flows itself to predict future cash flows of listed public firms and industries selected from Istanbul Stock Exchange. Additionally we have focused on the effects of firms specifications such as sign of cash flows, size of assets, and liquidity period on predicting cash flows. Cash flows variable is a significant variable in predicting future cash flows of firms compared to earnings. These results contradict FASB s exert that earnings have better predictive ability to determine future cash flows. It could be inferred from our results that financial crisis has negative effects on prediction power of current cash flows to determine future cash flows. Generally it can be said that, among selected industries, cash flows are significant to predict industries future cash flows. Firms specifications usually support the idea that cash flows predictive ability is significant to determine future cash flows, such as positive sign of cash flows, larger asset size, shorter liquidity period and operation cycle. Based on the marginal prediction power of cash flows and earnings, it can be concluded that for the selected samples, cash flows have higher effects on predicting future cash flows compared to earnings. References [1] Aktaş, H., Hisse Senetleri Piyasasında Muhasebe Bilgilerinin Önemi. Gazi Kitabevi, Ankara, Turkey. [2] Al-Attar, A. and S., Hussain, Corporate Data and Future Cash Flows, Journal of Business Finance & Accounting 31 (7-8), (September/October), pp [3] Ball, R. and P., Brown, An Empirical Evaluation of Accounting Income Numbers, Journal of Accounting Research 6 (2), (Autumn), pp

10 Journal of Money, Investment and Banking - Issue 25 (2012) 180 [4] Barth, M.E., D.P., Cram, and K.K., Nelson, Accruals and the Prediction of Future Cash Flows, The Accounting Review 76, pp ; (in Zheng, L., Did the 1998 Chinese Accounting System Improve Earning Quality, Ph.D. Dissertation, Graduate School of the University of Alabama, UMI, Umi microfilm ). [5] Beaver, W.H. and R.E., Dukes, Interperiod Tax Allocation, Earnings Expectations, and the Behavior of Security Prices, The Accounting Review 47 (2), (April), pp [6] Bowen, R.M., D., Burgstahler, and L.A., Daley, Evidence on the Relationships Between Earnings and Various Measures of Cash Flow, The Accounting Review 61, pp [7] Chotkunakitti, P., Cash Flows and Accrual Accounting in Predicting Future Cash Flows of Thai Listed Companies, Ph.D. Dissertation, Graduate College of Management of Southern Cross University, Australia. [8] Dechow, P.M., S.P., Kothari, and L., Watts, The Relation Between Earnings and Cash Flows, Journal of Accounting and Economics, 25, pp ; (in Zheng, L., Did the 1998 Chinese Accounting System Improve Earning Quality, Ph.D. Dissertation, Graduate School of The University of Alabama, UMI, Umi microfilm ). [9] Finger, C.A., The Ability of Earnings to Predict Future Earnings and Cash Flows, Journal of Accounting Research, 32 (2), (Autumn), pp ; (in Zheng, L., Did the 1998 Chinese Accounting System Improve Earning Quality, Ph.D. Dissertation, Graduate School of The University of Alabama, UMI, Umi microfilm ). [10] Garrod, N., B., Giner, and M., Larrán, The Value Relevance of Earnings, Operating Cash Flow and Accruals: A Study on UK Data, South African Journal of Accounting Research 17 (1), pp [11] Garrod, N., and M., Hadi, Investor Response to Cash Flow Information, Journal of Business Finance & Accounting, 25 (5 & 6), (June/July), pp ; (in Al-Attar, A. and S., Hussain, Corporate Data and Future Cash Flows, Journal of Business Finance & Accounting 31 (7 & 8), (September/October), pp ). [12] Greenberg, R.R., G.L., Johnson, and K., Ramesh, Earnings versus Cash Flow as a Predictor of Future Cash Flow Measures, Journal of Accounting, Auditing & Finance 1 (October), pp [13] Orpurt, S.F. and Y., Zang, Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows and Earnings?, The Accounting Review 84 (3), pp [14] Seng, D., Earnings versus Cash Flows as Predictors of Future Cash Flows: New Zealand Evidence, AAANZ Conference, Tasmania, Department of Accountancy and Business Law, University of Otago, New Zealand, [15] Zheng, L., Did the 1998 Chinese Accounting System Improve Earning Quality, Ph.D. Dissertation, Graduate School of The University of Alabama, UMI, Umi microfilm