The predictive ability of quarterly financial statements

A fundamental role of financial reporting is to provide information useful in forecasting future cash flows. Applying up-to-date time series modelling techniques, this study provides direct evidence on the usefulness of quarterly data in predicting future operating cash flows. Moreover, we show that...

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Bibliographic Details
Published inInternational journal of financial studies Vol. 9; no. 3; pp. 1 - 17
Main Authors Zhou, Hui, Maneesoonthorn, Worapree Ole, Chen, Xiangjin B
Format Journal Article
LanguageEnglish
Published Basel MDPI 01.09.2021
MDPI AG
Subjects
Accounting
Annual reports
capital market information environment
Cash flow forecasting
Financial reporting
financial reporting frequency
Financial statements
Interim reports
Seasonal variations
Time series
Working capital
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Summary:A fundamental role of financial reporting is to provide information useful in forecasting future cash flows. Applying up-to-date time series modelling techniques, this study provides direct evidence on the usefulness of quarterly data in predicting future operating cash flows. Moreover, we show that the predictive gain from using quarterly data is larger for asset-heavy industries and industries with higher levels of earnings smoothness. This study contributes to the accounting literature by examining the usefulness of quarterly financial statements in predicting the realization of future cash flows. Our results help fill the gap in knowledge on quarterly financial statements and provide new insights on why the frequency of financial reporting matters. In addition, our findings have important policy implications for the ongoing debate over interim reporting requirements in multiple jurisdictions around the world.
ISSN:2227-7072
2227-7072
DOI:10.3390/ijfs9030050