Corporate Data and Future Cash Flows

Authors

  • Ali Al-Attar,

  • Simon Hussain

    Corresponding author
      Simon Hussain, Department of Accounting & Finance, Armstrong Building, University of Newcastle upon Tyne, NE1 7RU, UK.
      e-mail: Simon.Hussain@ncl.ac.uk
    Search for more papers by this author
    • *

      The authors are respectively, from Hashemite University, Jordan; and a doctoral student at the University of Newcastle upon Tyne. They wish to pay special thanks to the anonymous referee whose comments influenced all aspects of the paper, but especially the research design and the sample selection. The authors are most grateful for this contribution. They would also like to thank participants at the BAA Northern Accounting Group Conference (September 2001, University of Newcastle upon Tyne) for their insightful comments on a draft version of this paper. Their suggestions were much appreciated and helped develop the focus of the research. (Paper received November 2002, revised and accepted April 2003)


Simon Hussain, Department of Accounting & Finance, Armstrong Building, University of Newcastle upon Tyne, NE1 7RU, UK.
e-mail: Simon.Hussain@ncl.ac.uk

Abstract

Abstract:  This article examines the ability of current accounting data to explain future cash flows for UK firms, as disclosed under FRS1(1991). Rather than examining price data — from which cash flow implications have to be inferred — we follow the more direct approach used in several recent US studies, in which actual future cash flow data are examined. Specifically, our methodology is a development of the OLS regression framework employed by Barth et al. (2001). We provide a replication of their main OLS analysis, and then extend this to deal with fixed effects and time trends in the levels of cash flow data. Our study finds that the disaggregation of earnings into cash flows and accruals, generates superior explanatory power with regard to future cash flows.

Ancillary