Future Cash Flow Predictability of Non‐IFRS Earnings: Australian Evidence. Issue 2 (26th December 2016)

• Record Type: Journal Article
• Authors: Sinnewe, Elisabeth; Harrison, Jennifer L.; Wijeweera, Albert
• Is Part Of: Australian accounting review. Volume 27:Issue 2(2017:Jun.)
• Page Start: 118
• Page End: 128
• Publication Date: 2016-12-26
• Subjects: Accounting -- Australia -- Periodicals; Accounting -- Standards -- Australia -- Periodicals; Accounting -- Periodicals; Managerial accounting -- Periodicals; Corporations -- Finance -- Periodicals; 657.0994
• DOI: 10.1111/auar.12113
• Languages: English
• ISSNs: 1035-6908

Abstract

Abstract : The global proliferation of reporting non‐International Financial Reporting Standards (IFRS) (pro forma) earnings has been subject to academic debate and regulatory reform. This study examines whether non‐IFRS earnings contain statistically significant information on future cash flow predictability that could be useful for investors. The study uses data from large Australian listed companies over a six‐year period (2006–11) covering three distinctive periods around the global financial crisis (GFC): pre‐GFC, GFC and post‐GFC. Results based on fixed effects panel estimation methods suggest non‐IFRS earnings do exert a significantly positive impact on future cash flow predictability but only during pre‐crisis and crisis periods. Abstract : In this paper we examine whether non‐IFRS (pro forma) earnings forecast future cash flows better than IFRS earnings. Using a unique dataset for Australian companies from 2006–11, results show that non‐IFRS earnings predict cash flows better than IFRS earnings. Yet, this relationship changes during different economic conditions.