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The Effect of Firm Size on Predictability Future Cash Flows Using Earnings and Operating Cash Flows

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  • Nasrollah Takhtaei
  • Hassan Karimi

Abstract

The aim of this research is to investigate earnings relative ability, operating cash flow, and two traditional criteria of cash flow, that is, net earnings plus depreciation and operating working capital in predicting operating future cash flows. Further, the effect of firm size on the ability to predict these criteria is investigated in this research. The sample firms contain listed companies in Tehran Stock Exchange (TSE) over the period 2005-2009. The results show that net earnings relative to operating cash flows and its traditional criteria have greater ability to predict future cash flows in small firms whereas operating cash flows compared with other criteria are better predictors in big firms. Results indicate thatthe predictability of all models increases considerably when firm size increases.

Suggested Citation

  • Nasrollah Takhtaei & Hassan Karimi, 2017. "The Effect of Firm Size on Predictability Future Cash Flows Using Earnings and Operating Cash Flows," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 9(1), pages 90104-90104, December.
    • Handle: RePEc:mth:ajfa88:v:9:y:2017:i:1:p:90104
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    References listed on IDEAS

    as
    1. Ali Al-Attar & Simon Hussain, 2004. "Corporate Data and Future Cash Flows," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7-8), pages 861-903.
    2. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
    3. Ali Al‐Attar & Simon Hussain, 2004. "Corporate Data and Future Cash Flows," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7‐8), pages 861-903, September.
    4. Ali, A, 1994. "The Incremental Information-Content Of Earnings, Working Capital From Operations, And Cash Flows," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 32(1), pages 61-74.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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