The role of accruals in evaluating and predicting cash flows in companies admitted to the Tehran Stock Exchange.

Number of pages: 138 File Format: word File Code: 30757
Year: 2014 University Degree: Master's degree Category: Management
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  • Summary of The role of accruals in evaluating and predicting cash flows in companies admitted to the Tehran Stock Exchange.

    Academic Thesis for Master's Degree

    Field: Business Management - Financial Orientation

    Abstract:

    The purpose of this research is to investigate the role of accruals in evaluating and forecasting cash flows of companies. This research is a library and analytical-causal study and is based on panel data analysis. In this research, the financial information of 103 companies admitted to the Tehran Stock Exchange during the period from 2006 to 2011 has been examined (618 companies - year). 7 Eviews software was used to analyze the results of the research. The results of the research in connection with the confirmation of the first hypothesis of the research showed that discretionary accruals have a significant and direct effect on the evaluation and prediction of future cash flows. Also, according to the analyzes carried out in connection with the second hypothesis of the research, we came to the conclusion that non-discretionary accruals do not have a significant effect on the evaluation and prediction of future cash flows. Finally, the results of the research in connection with the confirmation of the third hypothesis of the research indicated that total accruals have a significant and direct effect on the evaluation and forecasting of future cash flows. In short, the results of the research indicate that optional and total accruals have a significant direct effect on predicting future cash flows, but non-discretionary accruals do not have a significant effect on predicting future cash flows. Key:

    Discretionary accruals, forecasting future cash flows, non-discretionary accruals, total accruals and panel data

    1-1-Introduction

    In the first chapter, after stating the problem and how to choose the research topic, we examine the importance and necessity of research and research literature; Then we state the objectives of the research and continue to state the hypotheses, variables and research model. Also, we describe the method, tools for collecting and analyzing information, the territory and the statistical population of the research in the form of separate paragraphs. The operational definitions of the keywords of the research are also given in this chapter and finally the general structure of the research is mentioned.

    1-2- Statement of the problem and how to choose the research topic

    Forecasting is an important part of the decision-making process, because decision-making reflects what will happen in the future. In economic decision-making, financial forecasting is an important activity. There is a need to forecast cash flows in various economic decisions because cash flows are the basis for paying dividends, interest, debt repayment, etc. are (Barth, 2006)[1]. One of the information obtained from the information systems is "accrual items of companies" which is calculated on an accrual basis and shown in the financial statements (Lark and Willinger, 2008) [2]. Since accrual accounting profit is used by many users of financial information to measure the performance of companies, it is considered as an important item (Arput and Zeng, 2009)[3]. Accruals are easier to change and manipulate than cash flows, so management can lead to an increase in the scope of errors in accruals (Kim et al., 2010) [4]. However, the existence of profit management does not mean the presence of errors in accruals, and as a result, less stability of accruals (Pon and Granger, 2003) [5]. Mistakes in accruals are caused by two issues. First, some errors can occur because some accrual items, under some accounting rules, have very low reliability, and second, some errors occur due to the estimation of the future economic effects of current and past events (Dirks and Frein, 2002) [6]. Olsen [7] et al. (2005), suggested that more explanations regarding the relationship between accruals and forecasting of future cash flows should be the focus of attention and necessary disclosure should be made in connection with them. The capital market is the place where two major groups of investors and investors (companies) meet, and accounting plays the role of a link between these two groups (Jackson, 2008) [8]. Due to the importance of cash flows, there is a need to predict cash flows in various economic decisions. The importance of this prediction has been supported by national and international standardization foundations, and in this regard, researchers have repeatedly used accrual and cash accounting data for this prediction, and contradictory results have been obtained.In the previous researches, mainly the studied companies were examined independently to forecast cash flows and relevant hypothesis tests were performed in each company, while in this research, the information of a number of companies will be examined at once according to the financial year. In this research, the impact of the role of accruals in the evaluation and forecasting of future cash flows will be investigated. For this reason, the variable of evaluating and forecasting future cash flows as a dependent variable and accrual items variables. optional, non-optional accruals and total accruals will be used as independent variables. We will also use control variables such as: profit sharing variable, total income volatility, time ratio and cash balance that have an indirect effect on the independent variables. Are Tehran securities effective or not?

    1-3- Importance and necessity of research

    In recent research, in addition to the separation of accruals in forecasting future cash flows, cash flows have also been separated into their components and their role in improving the explanatory power of forecasting models has been examined (Francis et al., 2013)[9]. Forecasting cash flows and its changes as an economic event has long been of interest to investors, managers, creditors and researchers. This attention is due to the use of cash flows in stock valuation models, assessment of the ability to pay dividends, fees and other obligations, risk assessment, evaluation of business unit performance and management's duty of stewardship, assessment of how to choose accounting methods by management and use of cash flows to make beneficial decisions related to decision-making models. Now, if cash flows can be predicted properly, a significant part of the information needs related to cash flows will be provided (Arab Mazar Yazdi and Safarzadeh, 2015). The future liquidity situation of the business unit depends on the ability of the business unit to provide the cash needed to settle obligations at maturity and other cash needs, which affects the market prices of the business unit's securities (Drake and Farin, 2002).  Therefore, financial reporting should provide information that investors, creditors, and other interested parties can evaluate the amount, timing, and uncertainty of future cash flows (Financial Accounting Standards Board, 1987). Historical information related to cash flows can help users of financial statements in judging the amount, time and degree of certainty of the realization of future cash flows. The mentioned information shows the relationship between the profitability of the business unit and its ability to create cash, and as a result, determines the quality of profit and the quality of accruals acquired by the business unit. In addition, analysts and other users of financial information often formally or informally use models to evaluate and compare the present value of future cash flows with respect to companies' accruals (Tomlinson and Mayer, 2009) [10]. Historical information related to cash flow can be useful to control the accuracy of past assessments and show the relationship between the business unit's activities and its receipts and payments. Also, it is possible to evaluate the opportunities and risks of business activity and the duty of stewardship by using operational cash flows (Audit Organization, 2018). In this research, we will examine the role of accruals in predicting future cash flows in companies listed on the Tehran Stock Exchange based on data from companies listed on the Tehran Stock Exchange in the period between 1386 and 1391, considering the increasing importance of paying attention to the ratio of cash flows of companies.

    1-4- Review of research literature

    In this section Some of the previous foreign and domestic researches are summarized as follows.

    1-4-1- External researches:

    Francis and colleagues in 2005 investigated the impact of accruals on inaccuracy in operating cash flow forecasts during a research entitled "Accrual items and errors in operating cash flow forecasts". Recent evidence suggests that imprecise forecasts of operating cash flows are related to the accuracy of regression model forecasts.

  • Contents & References of The role of accruals in evaluating and predicting cash flows in companies admitted to the Tehran Stock Exchange.

    List:

    Abstract ..1

    Chapter One

    Introduction. 3

    Statement of the problem and how to choose the research topic. 3

    The importance and necessity of research. 4

    A review of research literature. 5

    Research objectives. 9

    Research hypotheses. 10

    variables and research model. 10

    Research method. 15

    Methods and tools of information gathering. 15

    Method of information analysis. 16

    Field of research. 16

    Society and research statistical sample. 17

    Definitions of key words. 17

    The structure of the research. 18

    Chapter summary. 19

    Chapter Two

    Introduction. 21

    The concept of cash. 23

    The importance of cash flow. 24

    Research approaches related to the usefulness of accruals in cash flow forecasting 26

    Effective factors on cash flow forecasting. 29

    Definition of profit management. 30

    The importance of profit management. .30

    Profit management or fraud. 31

    Motives of profit management. 32

    The discovery of profit management. 37

    Definition of accrual items. 39

    Quality of accrual items. 40

    Existing models to check the quality of accrual items. 41

    The quality of accruals as a measure to measure the quality of profit. 43

    Ratio of cash flow to profit. 44

    Changes in all commitment items. 44

    The direct estimation of the relationship between pledged items and cash. 45

    Communication being useful in decision-making and presenting honestly. 45

    Profit management and accruals management. 47

    Research done abroad. 50

    Research done inside the country. 53

    Chapter Three

    3-1- Introduction. 57

    3-2 (the statistical population of the research. 57

    3-3) Determining the size of the research sample. 57

    3-4) specific research objectives. 59

    3-5) research questions. 60

    3-6) research hypotheses. 60

    3-7) research method.   61

    3-8) Method and tool of information collection. 61

    3-9) Definition of variables and how to calculate them.   62

    3-10) research models. 66

    3-11) internal and external validity of research. 67

    3-12) The method of analyzing models and testing hypotheses. 67

    3-13) Panel data method. 68

    3-14) fixed effects method. 69

    3-15) Chow test or bounded F. 70

    3-16) Hausman test. 71

    3-17) Testing the significance of the model. 71

    3-18) Coefficients significance test. 71

    3-19) The test related to checking the normality of the distribution of variables. 72

    3-20) Tests related to the assumptions of the linear regression model. 72

    3-21) The assumption of normality of the residuals. 72

    3-22) Assuming the absence of collinearity between independent variables. 73

    3-23) assumption of independence of the residuals. 74

    3-24) Assuming the absence of heterogeneity of variances among the residuals. 74

    3-25) Assuming the absence of model specification error and linearity of the model. 75

    Chapter Four

    4-1) Introduction. 77

    4-2) Descriptive statistics of research variables. 77

    4-3) The normality test of the distribution of the dependent variable of the research.   79

    4-4) Stationary test of the research variables. 82

    4-5) Checking the correlation between the research variables. 83

    4-6) Checking the collinearity between independent variables. 86

    4-7) The results of the research hypotheses test. 86

    4-8) chapter summary. 96

    Chapter Five

    5-1) Introduction. 98

    5-2) Summary of the research. 98

    5-3) Hypothesis test results. 99

    4-5) Conclusion. 100

    5-5) Research limitations. 100

    5-6) Suggestions based on research results. 101

    5-7) Suggestions for future research. 101

    5-8) Summary of the chapter. 102

    Sources and sources. 103

    Appendix..111

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The role of accruals in evaluating and predicting cash flows in companies admitted to the Tehran Stock Exchange.