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The determinants and valuation effects of classification choice on the statement of cash flows
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Charitou, Andreas, Karamanou, Irene and Kopita, Anastasia (2018) The determinants and valuation effects of classification choice on the statement of cash flows. Accounting and Business Research, 48 (6). pp. 613-650. doi:10.1080/00014788.2017.1407626
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WRAP-determinants-valuation-effects-classification-choice-statement-cash-flows-Kopita-2018.pdf - Accepted Version - Requires a PDF viewer. Download (1100Kb) | Preview |
Official URL: http://dx.doi.org/10.1080/00014788.2017.1407626
Abstract
In this paper we exploit the choice allowed by International Financial Reporting Standards (IFRS) regarding the presentation of interest payments on the cash flow statement to answer two related questions: First, whether the classification choice is explained by firm reporting incentives and second, whether it is value relevant. Using a UK sample, we find that firms reporting losses, with a greater proportion of their debt stemming from public sources, with CFO-based covenants and greater increases in leverage in the year of adoption are less likely to report interest payments in cash flows from operating activities (CFOA). Results also suggest that the incentive to meet or beat analyst CFO forecasts decreases, but strong corporate governance increases the probability of including interest payments in CFOA. Based on the assumption that the decision not to classify interest payments in CFOA captures lower disclosure quality or poor future expected performance, we posit that these firms should also exhibit lower valuations. Results obtained after correcting for self-selection bias confirm this assertion. We conclude that managers’ decision not to classify interest payments in CFOA is consistent with the opportunistic use of the choice allowed by IFRS.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HF Commerce | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Accounting Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Financial statements -- Standards -- Case studies -- Great Britain, Cash flow | ||||||||
| Journal or Publication Title: | Accounting and Business Research | ||||||||
| Publisher: | Routledge | ||||||||
| ISSN: | 0001-4788 | ||||||||
| Official Date: | 2018 | ||||||||
| Dates: |
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| Date of first compliant deposit: | 21 August 2018 | ||||||||
| Volume: | 48 | ||||||||
| Number: | 6 | ||||||||
| Page Range: | pp. 613-650 | ||||||||
| DOI: | 10.1080/00014788.2017.1407626 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Publisher Statement: | This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 12th Dec 2017, available online: http://www.tandfonline.com/10.1080/00014788.2017.1407626 | ||||||||
| Access rights to Published version: | Restricted or Subscription Access |
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