Quarterly earnings, operating cash flow, and accruals in future performance assessment

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Renê Coppe Pimentel
Mara Jane Contrera Malacrida


This paper analyzes the informative content of quarterly earnings, operating cash flows, and accruals to assess future performance. The empirical analysis is based on 270 Brazilian non-financial firms listed on B3 from 2005 to 2018. Autoregressive models and variance decomposition were performed. Overall, results show that accounting earnings and accruals have incremental information content over operating cash flows in accessing future financial performance. Firstly, earnings have higher persistence parameters and capture a longer-term perspective showing that earnings, under the accrual regime, are more predictable than cash flows when using their past information. Secondly, the magnitude of accruals positively affects the persistence of earnings. Thirdly, as a component of earnings, operating cash flows are more persistent than the accruals component. Fourthly, high accrual levels are associated with lower future earnings. Finally, earnings have incremental informative power to explain future operating cash flows. This study contributes to the literature by providing evidence of the information content of quarterly performance measures with specific controls for accounting accruals processes, which is useful for financial performance forecasts in markets with low analyst coverage and restricted enforcement mechanisms.


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Pimentel, R. C., & Malacrida, M. J. C. (2020). Quarterly earnings, operating cash flow, and accruals in future performance assessment. Brazilian Administration Review, 17(4), e190115. https://doi.org/10.1590/1807-7692bar2020190115
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