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The Usefulness of Direct and Indirect Cash Flow Disclosures

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  • Greg Clinch

  • Baljit Sidhu
  • Samantha Sin

Abstract

We investigate the ability of disclosed operating cash flow and indirect accruals components to explain annual returns for a sample of Australian firms. Consistent with claims made by accounting standard setters, we find evidence of significant explanatory power for disclosed operating cash flow components beyond aggregate operating cash flows when they also have significant incremental predictive power for future (one year ahead) operating cash flows. Accrual components also have incremental explanatory power for returns. In addition, we find evidence of significant explanatory power for operating cash flow components beyond estimates of the components (based on other financial statement disclosures) for firms with large differences between disclosed and estimated components.

Suggested Citation

  • Greg Clinch & Baljit Sidhu & Samantha Sin, 2002. "The Usefulness of Direct and Indirect Cash Flow Disclosures," Review of Accounting Studies, Springer, vol. 7(4), pages 383-404, December.
    • Handle: RePEc:spr:reaccs:v:7:y:2002:i:4:d:10.1023_a:1020759511460
    DOI: 10.1023/A:1020759511460
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    References listed on IDEAS

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    1. Wilson, Gp, 1986. "The Relative Information-Content Of Accruals And Cash Flows - Combined Evidence At The Earnings Announcement And Annual-Report Release Date," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24, pages 165-200.
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    3. Klammer, Thomas P. & Reed, Sarah A., 1990. "Operating cash flow formats: Does format influence decisions?," Journal of Accounting and Public Policy, Elsevier, vol. 9(3), pages 217-235.
    4. 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.
    5. Barth, ME & Clinch, G, 1998. "Revalued financial, tangible, and intangible assets: Associations with share prices and non-market-based value estimates," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36, pages 199-233.
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