The ability of cash flows to predict the earning: Evidence from Jordan

Author:

Fawzi Shubita Mohammad1ORCID

Affiliation:

1. Ph.D., Professor, Accounting Department, Amman Arab University

Abstract

This study aims to investigate the ability of cash flows components to predict the earning and to know the extent of the relationship between accounting profits and cash flow measures. The study sample consisted of 77 industrial companies listed on the Amman Stock Exchange in Jordan for the period from 2006 to 2019. This study relied on the regression method to test the relationship between the study variables. The study findings showed that the cash flows from operating, investing, and financial activities have a statistically significant impact on predicting future earnings. The study also examined the effect of length of operating cycle and company’s size on the predictive ability of cash flows regarding future earnings. The main results for this aspect are that large companies and short operating cycle companies have higher prediction ability for future earnings than small and long operating cycle companies. This paper provides evidence of the information content of cash flows for future earnings in emerging markets like Jordan and is important for Jordanian shareholders by enabling them to evaluate company’s performance. AcknowledgmentsI would like to thank Amman Arab University for its great support, and for funding this study.

Publisher

LLC CPC Business Perspectives

Subject

Strategy and Management,Economics and Econometrics,Finance,Business and International Management

Reference34 articles.

1. Al-Deb’i, M. A. M. (2011). Are Operating Cash Flows a Superior Predictor of Future Operating Cash Flows than Earnings? Evidence from Jordan. European Journal of Economics, Finance and Administrative Sciences, 40, 36-46. - https://www.researchgate.net/publication/284028979

2. Al-Debi’e, M. M. (2011). Working capital management and profitability: the case of industrial firms in Jordan. European Journal of Economics, Finance and Administrative Sciences, 36, 75-86. - https://www.researchgate.net/profile/Mamoun-Al-Debie/publication/284029352_Working_Capital_Management_and_Profitability_The_Case_of_Industrial_Firms_in_Jordan/links/57ecef7108ae92a5dbd08885/Working-Capital-Management-and-Profitability-The-Case-of-Industrial-Firms-in-Jordan.pdf

3. The ability of cash flows to predict the earning

4. The role of accounting accruals for the prediction of future cash flows: evidence from Spain

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