An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Mostafa A. El Shamy
College of Business - Kuwait University

Abstract: The study examines the classification differences between IAS 7 and U.S GAAP and the impact of these differences on the value-relevance of cash flows from operations (CFO) for banks. It demonstrates that cash flows components for banks reported under IAS 7 are significantly different from those reported under U.S. GAAP and shows that under IAS 7 different cash flows are classified similarly and similar cash flows are classified differently. The empirical results show that: (1) U.S. GAAP produces a smoother measure for CFO, (2) CFO measured under U.S. GAAP are more associated with stock prices and dividends than CFO measured under IAS 7, (3) CFO based on US GAAP have additional explanatory power in equity valuation over CFO based on IAS 7, and (4) both cash flow measures have additional explanatory power to each other in explaining changes in cash dividends.

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