The ability of cash flows to predict the earning: Evidence from Jordan

  • Received July 14, 2021;
    Accepted September 27, 2021;
    Published October 5, 2021
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.18(4).2021.04
  • Article Info
    Volume 18 2021, Issue #4, pp. 36-44
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This work is licensed under a Creative Commons Attribution 4.0 International License

This study aims to investigate the ability of cash flows components to predict the earning and to know the extent of the relationship between accounting profits and cash flow measures. The study sample consisted of 77 industrial companies listed on the Amman Stock Exchange in Jordan for the period from 2006 to 2019. This study relied on the regression method to test the relationship between the study variables. The study findings showed that the cash flows from operating, investing, and financial activities have a statistically significant impact on predicting future earnings. The study also examined the effect of length of operating cycle and company’s size on the predictive ability of cash flows regarding future earnings. The main results for this aspect are that large companies and short operating cycle companies have higher prediction ability for future earnings than small and long operating cycle companies. This paper provides evidence of the information content of cash flows for future earnings in emerging markets like Jordan and is important for Jordanian shareholders by enabling them to evaluate company’s performance.

Acknowledgments
I would like to thank Amman Arab University for its great support, and for funding this study.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. OLS regression results
    • Table 4. OLS regression results (large companies)
    • Table 5. OLS regression results (small companies)
    • Table 6. OLS regression results (long operating cycle companies)
    • Table 7. OLS regression results (short operating cycle companies)
    • Conceptualization
      Mohammad Fawzi Shubita
    • Data curation
      Mohammad Fawzi Shubita
    • Formal Analysis
      Mohammad Fawzi Shubita
    • Investigation
      Mohammad Fawzi Shubita
    • Funding acquisition
      Mohammad Fawzi Shubita
    • Methodology
      Mohammad Fawzi Shubita
    • Project administration
      Mohammad Fawzi Shubita
    • Resources
      Mohammad Fawzi Shubita
    • Software
      Mohammad Fawzi Shubita
    • Supervision
      Mohammad Fawzi Shubita
    • Validation
      Mohammad Fawzi Shubita
    • Visualization
      Mohammad Fawzi Shubita
    • Writing – original draft
      Mohammad Fawzi Shubita
    • Writing – review & editing
      Mohammad Fawzi Shubita