The optimal model for operating cash flow in Chinese industries

Xiaoyang Tan; Lingyan Zuo

doi:10.1007/978-981-13-0983-0_13

The optimal model for operating cash flow in Chinese industries

Xiaoyang Tan, Lingyan Zuo^*

^*Corresponding author for this work

Department of Accounting

Xi'an Jiaotong-Liverpool University

Research output: Chapter in Book or Report/Conference proceeding › Chapter › peer-review

Abstract

This chapter investigates the relationship between accruals and cash flow prediction in China’s industries, drawing upon existing models explored in studies of US and UK industries. Evidence from both US and UK studies supports the hypothesis that accruals contain significant explanatory power for future cash flows. However, there is no consensus regarding the forecast superiority of using models of aggregated accruals versus models of disaggregating accruals into components of earnings. This chapter examines three models by panel regressions to find out which model best explains operating cash flows in China’s industries. We find that the cash flow model that disaggregates accruals into normal and abnormal accruals has the best explanatory power for cash flows in different industries.

Original language	English
Title of host publication	The State of China's State Capitalism
Subtitle of host publication	Evidence of Its Successes and Pitfalls
Publisher	Palgrave Macmillan
Pages	311-346
Number of pages	36
ISBN (Electronic)	9789811309830
ISBN (Print)	9789811309823
DOIs	https://doi.org/10.1007/978-981-13-0983-0_13
Publication status	Published - 1 Jan 2018

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AB - This chapter investigates the relationship between accruals and cash flow prediction in China’s industries, drawing upon existing models explored in studies of US and UK industries. Evidence from both US and UK studies supports the hypothesis that accruals contain significant explanatory power for future cash flows. However, there is no consensus regarding the forecast superiority of using models of aggregated accruals versus models of disaggregating accruals into components of earnings. This chapter examines three models by panel regressions to find out which model best explains operating cash flows in China’s industries. We find that the cash flow model that disaggregates accruals into normal and abnormal accruals has the best explanatory power for cash flows in different industries.

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The optimal model for operating cash flow in Chinese industries

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