The authors’ objective is to explore the temporal changes in the correlation between the cash flow from operations and the accounting accruals. They find that non-timing-related accruals offset the generally accepted negative relationship between cash flows and accruals. The traditionally held view—that a strong cash flow/accrual relationship is a measure of earnings quality—no longer holds. The attenuated correlation is partially the result of economic shocks and the dominant impact of nonrecurring and non-operating items on cash flows and earnings.
Summarized by Marla Howard, CFA
Original Article published on Journal of Accounting Research, Vol. 54, No. 1 (March 2016): 41-78
Authors: Robert M. Bushman, Alina Lerman, and X. Frank Zhang
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