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The Relationship Between Accruals, Earnings, And Cash Flows: Evidence From Latin America

Author

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  • Carlos Omar Trejo-Pech
  • Magdy Noguera
  • Angel Samaniego-Alcantar
  • Richard N. Weldon

Abstract

The relationships between earnings, accruals, and cash flows for selected Latin American countries (Mexico, Chile, and Argentina) are investigated in this study from 1990 to 2009. We find a negative relationship between accruals and cash flow across decile portfolios. More importantly, firms reporting the highest level of accruals, have the worst level of cash flows, but not the worst level of earnings. This relationship is of economic importance given that investors are very oriented towards firms yielding high earnings and might fail to realize that earnings are not always accompanied by strong levels of cash flows. Results are disaggregated by years and countries, and compared to previous results for U.S. firms.

Suggested Citation

  • Carlos Omar Trejo-Pech & Magdy Noguera & Angel Samaniego-Alcantar & Richard N. Weldon, 2012. "The Relationship Between Accruals, Earnings, And Cash Flows: Evidence From Latin America," Accounting & Taxation, The Institute for Business and Finance Research, vol. 4(1), pages 95-107.
    • Handle: RePEc:ibf:acttax:v:4:y:2012:i:1:p:95-107
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    References listed on IDEAS

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    Cited by:

    1. Omar Mohammad Al-Hawatmeh, 2020. "The ability of cash flows to predict the earning," Journal of Social Sciences (COES&RJ-JSS), , vol. 9(2), pages 590-602, April.

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    More about this item

    Keywords

    Finance; Earnings and Cash; Financial Accounting; Latin American Public Firms.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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