Development of accruals predicting models based on cash flow Properties

The fundamental aim of this research is to apply the cash flows and characteristics of cash flows, namely “timing”, and “matching”, in important models for predicting accruals to improve the quality and explanatory power of these models.

The research data consists of a sample of 167 companies listed on the Tehran Stock Exchange for a period of 10 years and the hypotheses are tested using multiple linear regression and t-tests, Vuong test (1989) with the statistical software Stata (version 18).

The explanatory power of the models significantly increases and improves compared to standard models. Thirdly, the modified models result in the emergence of discretionary accruals items with greater reliability. Lastly, the adjusted jeter and shivakumar model, incorporating cash flows and their characteristics, exhibits the highest explanatory power among the examined models.

Contribution:

 The article provides a theoretical framework for understanding the relationship between accruals and cash-flow properties and empirically tests the relationship between accruals and cash-flow properties. Incorporating these variables in accrual models improves aids detection of earnings management in firms.