Joan Hollister
Marist College
Victoria Shoaf
St. John's University in New York
Gregory Tully
Marist College
Abstract: This paper investigates the international variation of an important property of accounting income: its predictive ability. For nine countries, we show that the components of accrual accounting earnings provide information incremental to that of current cash flows from operations in predicting next year’s cash flows from operations. We relate the usefulness of accounting earnings components for making short-term predictions to certain country characteristics—common/code law jurisdiction, accrual index, shareholders’ rights, and uncertainty avoidance. We provide evidence that accounting accruals generated by shorter horizon, code law regimes provide more incremental explanatory power for short-term predictions than those of longer horizon, common law countries.
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