Prior literature finds that cash flows are more persistent than accruals. We show that this finding arises from empirical specifications that do not completely incorporate non-current accruals and do not account for accrual estimation errors. We develop a specification that addresses these two issues and then show that accruals are more persistent than cash flows. In addition, we develop and apply an approach to validate accrual specifications.
|Publication status||Published - 6 Apr 2023|