PREDICTION OF FUTURE CASH FLOWS USING DISAGGREGATED ACCRUALS AND CASH FLOWS OF SMALL-SIZED FIRMS LISTED AT THE PAKISTAN STOCK EXCHANGE (PSE)

Iftikhar ul Amin, Giuseppe (Joe) Labianca, Nadia Iftikhar


DOI: http://dx.doi.org/10.22555/pbr.v18i3.935

Abstract


The prediction of future cash flows is vital for the investment
decisions of individuals as well as institutions.This research tests the prediction of future cash flows by various variables for instance current earnings, accrued accounts, operating cash flow and variables’ higher predictive ability. The findings suggest that current earnings do not reveal better prediction power as compared to the prediction ability of current operating cash flow for small sized firms in Pakistan.


The results support the result of model specified by Barth et.al (2001), that improved predictability is resulted if cash flows and aggregate accrued accounts are used as an independent variable rather than current earnings. Additionally, disaggregation of accrued accounts provides superior explanatory-power than using aggregate accrued accounts. Separate current earnings or current operating cash flow variables are not sufficient to predict the future cash flow; more parts are to be added in order to enhance the ability to predict future cash flowsin the context of small firms in Pakistan.

 


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