The main purpose of this paper is to investigate the rate at which innovations to accruals are converted into cash flows in the subsequent fiscal periods. The research proposes the cash conversation rate as a new measure of earnings quality. This paper uses a sample consisting of 3014 firm-year observations from 200 unique firms listed on the Tehran Security Exchange for the period 2002-2017. It employs a variety of regression models including moving average models and multivariate models. The findings show that accruals innovations tend to reverse fully in the next period for about 76 percent of the sample firms. The findings also show that for firms whose accrual innovations reverse within one year, the mean value of the cash conversation rate is about 0.413. Furthermore, the findings suggest that there is an inverse relationship between the cash conversation rate and accruals estimations errors. The obtained results suggest that accrual innovations are a source of new and additional information about future cash flows.
Ghorbani, A. (2021). The reversal of accrual innovations and their conversion into cash flows. Applied Research in Financial Reporting, 9(2), 47-76.
MLA
Arash Ghorbani. "The reversal of accrual innovations and their conversion into cash flows". Applied Research in Financial Reporting, 9, 2, 2021, 47-76.
HARVARD
Ghorbani, A. (2021). 'The reversal of accrual innovations and their conversion into cash flows', Applied Research in Financial Reporting, 9(2), pp. 47-76.
VANCOUVER
Ghorbani, A. The reversal of accrual innovations and their conversion into cash flows. Applied Research in Financial Reporting, 2021; 9(2): 47-76.
