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Predictive value of accruals and the moderating role of company size: Empirical evidence from Jordan

Mohammad Fawzi Shubita

Abstract: The cash flow statement aids the management to ascertain the profitability and liquidity position of a company. One can understand from the cash flow statement how efficiently the company is paying its obligation in various forms of liability and expense. This study aimed to explore the ability of short-term accounting accruals to predict cash flows. The sample included 77 Jordanian companies listed between 2006–2019. Cash flows were measured by net operating cash flows, and short-term accounting accruals were expressed as: change in account receivable, change in accounts payable, change in inventories, and other accruals. The results demonstrated the ability of short-term accounting accruals to predict future cash flows. The relationship between future cash flows and the short-term accounting accruals was significant, except for its relationship to the change in accounts payable. However, the findings indicate that the size of the company has not moderated the relationship between accounting accruals and operating cash flow. The study recommends using other accounting items besides short-term accounting accruals, to improve their ability to predict future cash flows and use of control variables that can increase the predictive power of the study model, such as financial leverage and company size. AcknowledgmentsI would like to thank Amman Arab University for its great support, and for funding this study.
Keywords: cash flows / accruals / moderating / accounting / model / company size

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