News Column

Data on Accounting Described by Researchers at Brigham Young University

June 28, 2014



By a News Reporter-Staff News Editor at Investment Weekly News -- Research findings on Accounting are discussed in a new report. According to news reporting out of Provo, Utah, by VerticalNews editors, research stated, "We provide empirical evidence on the quality of street cash flow from operations (CFO) as an alternative financial performance summary measure. We focus our investigation on the quality of the items analysts exclude in their determination of street CFO."

Our news journalists obtained a quote from the research from Brigham Young University, "Based on a sample of 8,518 firm-year observations over the 1993-2008 period, we find that the street CFO number is generally higher than the GAAP CFO number, indicating that analysts typically make CFO-increasing exclusions. Our inspection of hand-collected analyst reports reveals that, while some analysts make sophisticated exclusions of transitory cash items, many others ignore working capital and other accruals when adjusting forecasted earnings to arrive at their street CFO forecasts. We find that street CFO exclusions are negatively associated with future operating earnings, suggesting that these exclusions are not fully transitory or unimportant in forecasting future performance. Our results also indicate that street CFO exclusions are less transitory than the implicit accrual component of analysts' street earnings exclusions. These results suggest that the average quality of analysts' street CFO exclusions is quite low and that it is even lower than the quality of their implied accrual exclusions. Moreover, we find that investors perceive analysts' CFO exclusions to be of such low quality to render street CFO measures less informative than GAAP CFO figures."

According to the news editors, the research concluded: "Finally, we find that analyst conflicts of interest and (to some extent) the greater inherent volatility of firms' CFO series contribute to the low-quality nature of analysts' street CFO exclusions."

For more information on this research see: The quality of street cash flow from operations. Review of Accounting Studies, 2014;19(2):913-954. Review of Accounting Studies can be contacted at: Springer, Van Godewijckstraat 30, 3311 Gz Dordrecht, Netherlands. (Springer - www.springer.com; Review of Accounting Studies - www.springerlink.com/content/1380-6653/)

Our news journalists report that additional information may be obtained by contacting N.C. Brown, Brigham Young University, Marriott Sch Management, Provo, UT 84602, United States.

Keywords for this news article include: Utah, Provo, Accounting, United States, North and Central America

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Source: Investment Weekly News