THE PROCESS OF CONVERGENCE TO IFRS AND THE ABILITY OF PROFIT AND CASH FLOW IN PREDICTING FUTURE CASH FLOWS: EVIDENCE IN THE BRAZILIAN MARKET
DOI:
https://doi.org/10.11606/rco.v8i21.55603Keywords:
Cash flow, Accruals, Accounting Information.Abstract
ABSTRACT
In recent years, several studies have investigated the informational capacity accounting profit on the capital markets. A part of this research is focused on explaining the relationship between earnings, cash flow and accrauls and future cash flows. The focus is to find what accounting information is most relevant in predicting future cash flow. In this context, this article, which aims to analyze, in periods ‘pre’, ‘during’ and ‘after’ convergence process to IFRS, the ability of earnings (net and operating), cash flow and accruals in predict the future cash flow of 54 non-financial companies traded, during 2006 to 2011. The methodology used, through regression analysis, based on the works of Greenberg, Johnson and Ramesh (1986) and Barth, Cram and Nelson (2001), where five accounting variables was used to try to explain the behavior of the cash flow future. The results reveal an increase in explanatory power of earnings and operating cash flow combined with accruals during the after convergence process, compared to ‘pre’ and partial convergence process. Moreover, the results suggest that earnings broken down into cash flow and accruals increased significantly predictive capacity of future cash flows. Thus, it can be concluded that the accruals have additional information power in predicting future cash flows.
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