Firm-Specific Estimates of Differential Persistence and their Incremental Usefulness for Forecasting and Valuation

2015 ◽  
Vol 91 (3) ◽  
pp. 811-833 ◽  
Author(s):  
Andrew C. Call ◽  
Max Hewitt ◽  
Terry Shevlin ◽  
Teri Lombardi Yohn
Keyword(s):  
State Of The Art ◽  
Cash Flows ◽  
Trading Strategies ◽  
Significant Excess ◽  
Lower Growth ◽  
Cross Sectional ◽  
Operating Cash Flows ◽  
Earnings Components ◽  
Out Of Sample ◽  
Jel Classifications

ABSTRACT Although the differential persistence of accruals and operating cash flows is a firm-specific phenomenon, research seeking to exploit the differential persistence of these earnings components typically employs cross-sectional forecasting models. We find that a model based on firm-specific estimates of the differential persistence of accruals and operating cash flows is incrementally useful for out-of-sample forecasting relative to state-of-the-art cross-sectional models. In doing so, we show that firm-specific estimates of differential persistence are particularly useful when forecasting earnings for more stable firms (e.g., more profitable, lower growth, and less levered firms). We also demonstrate that a trading strategy exploiting investors' fixation on earnings and based on firm-specific estimates of differential persistence earns statistically and economically significant excess returns that are incremental to those generated by trading strategies based on the size of accruals. These results suggest that firm-specific estimates of differential persistence are incrementally informative for forecasting and valuation. JEL Classifications: M41.

Revisiting the (Mis)Pricing of Accruals

2019 ◽  
Vol 4 (1) ◽  
pp. 141-156
Author(s):  
Bradley Lail ◽  
Robert C. Lipe ◽  
Han S. Yi
Keyword(s):  
Stock Returns ◽  
Null Hypothesis ◽  
Statistical Tests ◽  
Cash Flows ◽  
Data Availability ◽  
Investor Behavior ◽  
Reliability Measures ◽  
Accrual Anomaly ◽  
Earnings Components ◽  
Jel Classifications

Our paper examines inconsistent conclusions regarding the accrual anomaly and demonstrates the importance of aligning regression specifications with hypotheses. Richardson, Sloan, Soliman, and Tuna (2005) conclude that accruals are mispriced and the mispricing seems to increase as accrual reliability decreases. Barone and Magilke (2009) and Ball, Gerakos, Linnainmaa, and Nikolaev (2016) conclude that cash flows rather than accruals are mispriced. We show that the divergent conclusions come from misalignment between the null hypothesis and regression specification in Richardson et al. (2005) . In addition, analysis of the contemporaneous relations between stock returns and components of earnings supports an initial underreaction to cash flows by investors. We fail to detect links between the reliability measures in Richardson et al. (2005) and investor behavior once we align the statistical tests with the null hypothesis. Our reexamination of prior findings benefits accounting academics, standard setters, and others interested in how investors use earnings components. JEL Classifications: M41. Data Availability: All data used in this study are publicly available from the sources identified in the text.

Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under U.S. GAAP and IFRS

2017 ◽  
Vol 93 (1) ◽  
pp. 187-211 ◽  
Author(s):  
Elizabeth A. Gordon ◽  
Hsiao-Tang Hsu
Keyword(s):  
Predictive Value ◽  
Cash Flows ◽  
Negative Association ◽  
Data Availability ◽  
Economic Factors ◽  
Negatively Associated ◽  
Operating Cash Flows ◽  
Reporting Incentives ◽  
Asset Impairments ◽  
Jel Classifications

ABSTRACT This paper investigates the predictive value of tangible long-lived asset impairments for changes in future operating cash flows under U.S. GAAP and IFRS. We find that impairments reported under IFRS are negatively associated with changes in future operating cash flows, whereas those under U.S. GAAP, on average, are not. We investigate whether differences in the predictive value are attributable to differences in recognition or measurement, providing evidence suggesting that impairment recognition under U.S. GAAP is delayed. Evidence also suggests that the value-in-use measurement attribute, allowed under IFRS, does not induce under-impairing as IFRS and U.S. GAAP impairments are similarly related to future impairments. The main result of a negative association under IFRS, but not U.S. GAAP, holds after considering future impairments to control for measurement differences, macro-economic factors, and firm reporting incentives. Further, impairment losses under IFRS are more predictive in high-enforcement countries. JEL Classifications: D78; F02; M16; M41; G38. Data Availability: Data used are available from sources identified in the paper.

Does the fundamental indexation portfolio perform better? An Indian investigation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Santosh Kumar ◽  
Ranjit Tiwari
Keyword(s):  
Capital Market ◽  
Stock Exchange ◽  
Cash Flows ◽  
Cross Sectional ◽  
Content Type ◽  
Operating Cash Flows ◽  
Asset Pricing Models ◽  
Portfolio Managers ◽  
Fama And French ◽  
Market Premium

Purpose This study aims to compare the fundamental indexation (FI) portfolio vis-à-vis the cap-weighted index (CWI). It also explored the return-generating attributes of the FI portfolios. Design/methodology/approach This study extracted relevant data from the Centre for Monitoring Indian Economy’s Prowess database from March 1996 to March 2017 from a sample of National Stock Exchange (NSE) 500 companies. The FI portfolios were constructed with First_50 and Next_50 stocks using the latest and five years of trailing average aggregations. Further, the regression technique was used to identify the return-generating attributes of FI portfolios. Findings It was found that the FI portfolios based on First_50 and Next_50 stocks outperformed the CWI (i.e. NSE_First_50 and NSE_Next_50) in the Indian capital market, and between the two, the FI portfolios based on Next_50 stocks were superior to the FI portfolios based on First_50 stocks. The cross-sectional superiority of FI portfolios is obvious if they are sorted according to four fundamentals, namely, total income, sales, operating cash flows and profit before depreciation interest tax and amortisation. The return-generating process of FI portfolios is well-explained by market premium followed by value premium and investment premium. Practical implications This study may enable portfolio managers and investors to measure FI portfolios’ superiority in the Indian capital market and identify the return-generating attributes of FI portfolios so that the loadings can be switched amongst different priced factors for higher yield. Further, this study extends the FI literature, providing evidence from one of the world’s fastest-growing economies. Originality/value To the best of the knowledge, this is amongst the first few studies to explore the performance of FI portfolios vis-à-vis CWIs in India, and to use Fama and French (2015) asset pricing models to understand the return-generating attributes of FI portfolios. It is also novel in the sense that it considers the FI portfolios for a longer duration, predating 1997 and coinciding with the inception of CWIs, namely, NSE_First_50 (inception: 1995) and NSE_Next_50 (inception: 1996), reducing the apprehensions of data-snooping biases.

Comparing US-GAAP and Iran-GAAP operating cash flows to predict future cash flows

2015 ◽  
Vol 13 (1) ◽  
pp. 39-65
Author(s):  
Reza Janjani
Keyword(s):  
Financial Reporting ◽  
Predictive Ability ◽  
Cash Flows ◽  
Financial Analyst ◽  
Cross Sectional ◽  
Content Type ◽  
Generally Accepted Accounting Principles ◽  
Operating Cash Flows ◽  
Statement Of Cash Flows ◽  
Future Cash Flows

Purpose – The main objective of this paper is to compare the ability of US-generally accepted accounting principles (GAAP) operating cash flows versus Iran-GAAP operating cash flows in predicting future cash flows. Design/methodology/approach – The sample comprises 240 firms (1,200 firm-years) during the period from 2004 to 2008 for which operating cash flows and other variables are available. Cross-sectional and panel data regression models are used in testing the hypotheses. Findings – This study finds that operating cash flows based on Iran-GAAP are no more effective in predicting future cash flows than those based on USA-GAAP, and the predictive ability of the model is improved by adding the earnings accrual components to the operating cash flows. Originality/value – The study suggests that the Iranian accounting standard setting committee recommends that the statement of cash flows be prepared based on the three-category model instead of the five-category model in an attempt to converge with the International Financial Reporting Standards. Consistent with Financial Accounting Standards Board and financial analyst recommendations, the results reveal that earnings are a better predictor than cash flows from operations.

Does the Ability of Operating Cash Flows to Measure Firm Performance Improve during Periods of Financial Distress?

2016 ◽  
Vol 31 (1) ◽  
pp. 23-35 ◽  
Author(s):  
Jong Eun Lee ◽  
Robson Glasscock ◽  
Myung Seok Park
Keyword(s):  
Firm Performance ◽  
Stock Returns ◽  
Shapley Value ◽  
Financial Distress ◽  
Cash Flows ◽  
Data Availability ◽  
Earnings Information ◽  
Operating Cash Flows ◽  
The Shapley Value ◽  
Jel Classifications

SYNOPSIS This study examines whether the associations between stock returns and earnings, and stock returns and cash flows from operations (OCF), vary during periods of firm-specific financial distress. We find that a firm's stock returns are more strongly associated with its OCF than its earnings when the firm is in financial distress. In a regression of stock returns on both OCF and earnings, and interactions of these two variables with an indicator for financial distress, the Shapley value, which measures contribution to the regression R2, is higher for the interaction of OCF with distress than for the interaction of earnings with distress. We also find that the strength of the observed return-OCF relation increases in a market-wide crisis. These findings support the view that investors, in times of firm distress, place significantly more weight on OCF information than on earnings information. JEL Classifications: G01; G10; M41. Data Availability: Data used in this study are available from public sources identified in the study.

State-of-the-art pulmonary arterial imaging – Part 2

VASA ◽  
2018 ◽  
Vol 47 (5) ◽  
pp. 361-375 ◽  
Author(s):  
Harold Goerne ◽  
Abhishek Chaturvedi ◽  
Sasan Partovi ◽  
Prabhakar Rajiah
Keyword(s):  
Pulmonary Artery ◽  
State Of The Art ◽  
Therapy Monitoring ◽  
Pulmonary Arteries ◽  
Imaging Modalities ◽  
Cross Sectional ◽  
Multiple Imaging ◽  
Cross Sectional Imaging ◽  
Pulmonary Arterial ◽  
Arterial Imaging

Abstract. Although pulmonary embolism is the most common abnormality of the pulmonary artery, there is a broad spectrum of other congenital and acquired pulmonary arterial abnormalities. Multiple imaging modalities are now available to evaluate these abnormalities of the pulmonary arteries. CT and MRI are the most commonly used cross-sectional imaging modalities that provide comprehensive information on several aspects of these abnormalities, including morphology, function, risk-stratification and therapy-monitoring. In this article, we review the role of state-of-the-art pulmonary arterial imaging in the evaluation of non-thromboembolic disorders of pulmonary artery.

Factors Associated with U.S. Public Companies' Investment in Internal Auditing

2005 ◽  
Vol 19 (2) ◽  
pp. 69-84 ◽  
Author(s):  
Joseph V. Carcello ◽  
Dana R. Hermanson ◽  
K. Raghunandan
Keyword(s):  
Audit Committee ◽  
Internal Audit ◽  
Cash Flows ◽  
Financial Service ◽  
Company Size ◽  
Internal Auditing ◽  
Public Companies ◽  
Ability To Pay ◽  
Factors Associated ◽  
Operating Cash Flows

Internal auditing has been the focus of much attention in recent years. This study examines factors associated with U.S. public companies' investment in internal auditing. Data from a survey administered to Chief Audit Executives of midsized U.S. public companies were supplemented with publicly available data. Based on data from 217 companies, the results indicate that total internal audit budgets (inhouse plus outsourced portions) are related to several factors associated with company risk, ability to pay for monitoring, and auditing characteristics. Specifically, we find evidence that internal audit budgets are positively related to company size, leverage, financial, service, and utility industries, relative amount of inventory, operating cash flows, and audit committee review of the internal audit budget. Total internal audit budgets are negatively related to the percentage of internal auditing that is outsourced. This study contributes to our understanding of internal audit services, and it allows companies to benchmark their investment in internal auditing.

scholarly journals Machine Learning in Futures Markets

2021 ◽  
Vol 14 (3) ◽  
pp. 119
Author(s):  
Fabian Waldow ◽  
Matthias Schnaubelt ◽  
Christopher Krauss ◽  
Thomas Günter Fischer
Keyword(s):  
Machine Learning ◽  
Futures Markets ◽  
Learning Models ◽  
Cross Sectional ◽  
Data Set ◽  
Statistical Arbitrage ◽  
Out Of Sample ◽  
Sample Testing ◽  
Arbitrage Strategy ◽  
Machine Learning Models

In this paper, we demonstrate how a well-established machine learning-based statistical arbitrage strategy can be successfully transferred from equity to futures markets. First, we preprocess futures time series comprised of front months to render them suitable for our returns-based trading framework and compile a data set comprised of 60 futures covering nearly 10 trading years. Next, we train several machine learning models to predict whether the h-day-ahead return of each future out- or underperforms the corresponding cross-sectional median return. Finally, we enter long/short positions for the top/flop-k futures for a duration of h days and assess the financial performance of the resulting portfolio in an out-of-sample testing period. Thereby, we find the machine learning models to yield statistically significant out-of-sample break-even transaction costs of 6.3 bp—a clear challenge to the semi-strong form of market efficiency. Finally, we discuss sources of profitability and the robustness of our findings.

scholarly journals The Influence of the Axial Rub Added in the Radial Rub on the Wear of the Seal Fins during the High Speed Rub of Labyrinth-Honeycomb Seal

Materials ◽  
2021 ◽  
Vol 14 (8) ◽  
pp. 1997
Author(s):  
Bin Lu ◽  
Haijun Xuan ◽  
Xiaojian Ma ◽  
Fangjun Han ◽  
Weirong Hong ◽  
...  
Keyword(s):  
Wear Rate ◽  
High Speed ◽  
State Of The Art ◽  
Negative Influence ◽  
Axial Thrust ◽  
Cross Sectional ◽  
Honeycomb Seal ◽  
Aero Engine ◽  
Honeycomb Seals ◽  
Clearance Change

Labyrinth-honeycomb seals are a state-of-the-art sealing technology commonly used in aero-engine interstage seal. The undesirable severe rub between the seal fins and the honeycomb due to the clearance change may induce the cracking of the seal fins. A pervious study investigated the wear of the seal fins at different radial incursion rates. However, due to the axial thrust and mounting clearance, the axial rub between the seal fins and the honeycomb may occur. Hence, this paper focuses on the influence of the axial rub added in the radial rub on the wear of the seal fins. The rub tests results, including rubbing forces and temperature, wear rate, worn morphology, cross-sectional morphology and energy dispersive spectroscopy results, are presented and discussed. Overall, the participation of the axial rub leads to higher rubbing forces, temperature, and wear rate. The tribo-layer on the seal fin is thicker and the cracks are more obvious at high axial incursion rate. These phenomena indicate the axial rub has a negative influence on the wear of the seal fins and should be avoided.

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