Journal of Behavioral and Experimental Finance 28 (2020) 100414

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Journal of Behavioral and Experimental Finance

journal homepage: www.elsevier.com/locate/jbef

Full length article

The prediction of future cash flows based on operating cash flows,

earnings and accruals in the French context
∗
Benjamin Noury a , Helmi Hammami b , A.A. Ousama c , , Rami Zeitun c
a
SeaBird Conseil, Paris, France
b
Rennes School of Business, Rennes, France
c
Qatar University, Doha, Qatar

article info a b s t r a c t

Article history: This study investigates the aptitudes of the cash-based and accrual-based accounting data for predict-
Received 18 September 2020 ing future cash flows from operations in the French context. In addition, our paper aims to investigate
Accepted 27 October 2020 the effect of the economic crisis on the prediction of future cash flow. The sample consists of 61 non-
Available online 2 November 2020
financial French listed companies, using annual data over the period 1999–2016. The study found that,
Keywords: regardless of the period, the model based on the operating cash flows combined with disaggregate
Cash flows accruals has a stronger explanatory power for predicting future operating cash flows, compared to
Earnings both earnings and operating cash flows combined with the aggregate accruals models. Moreover, our
Accruals results show that the aggregation of earnings falsifies the contribution of each accrual item and, as a
Economic crisis result, the decomposition of earnings into cash flows and disaggregate accrual enables a much more
France
accurate explanation of future operating cash flows.
© 2020 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license
(http://creativecommons.org/licenses/by/4.0/).

1. Introduction decisions that are related to dividend policy. According to the

Future cash flows explanation, management and prediction
are topics that have been the subjects of many research stud-
ies. Due to their importance, this subject is paradoxically still
relevant and vital in today’s investment world. Shareholders,
bankers, managers and all of the parties involved and interested
in the information from the financial statements, and how this
information is managed would benefit from knowing the most
appropriate method for cash prediction. Agency theory offers an
example of a controversial topic relating to cash management in
a company. Strategic decisions are very dependent on financial
information and, more specifically, on cash flows and earnings,
Chang et al. (2000) affirm, along with the International Account-
ing Standard Board (IASB) (2001). The information provided by
the operating cash flows can be used to examine the financial
health of a company and, in assessing its liquidity, the solvency
and the performance of the company (IASB, 2001).
Operating cash flows are crucial for decision makers when
they are taking decisions that are related to financing future
projects and repaying debts that support business activities and
enhance profitability. In addition, it helps management to take
∗ Corresponding author.
E-mail addresses: benjamin.noury@live.fr (B. Noury),
helmi.hammami@rennes-sb.com (H. Hammami), osamaanam@gmail.com
(A.A. Ousama), rami.zeitun@qu.edu.qa (R. Zeitun).
Financial Accounting Standards Board (FASB) and IASB, accrual
accounting is the generally accepted accounting convention when
they prepare their financial statements, if compared to the cash
accounting basis. The justification given by the FASB (1978, 1987)
is that cash flows are penalised by the timing and the matching
problems, which implies that the cash accounting basis provides
less comprehensive information.
Several prior studies that are related to the prediction of
future operating cash flows provide contradictory findings. For
instance, some studies establish that earnings have a higher
predictive power of future cash flows than the current cash
flows themselves (e.g., Bowen et al., 1986; Dechow et al., 1998;
Barth et al., 2001; Chotkunakitti, 2005; Waldron and Jordan,
2010; El-Sayed Ebaid, 2011), whilst other studies have found that
cash-based prediction models are the best explanatory models
(e.g., Greenberg et al., 1986; Jordan et al., 2007; Farshadfar et al.,
2008; Lorek and Willinger, 2009; Habib, 2010; Hammami, 2012;
Chong, 2012).
In a number of these studies, the issue was to discover
whether disaggregating the accruals could provide better pre-
dictive power (Al-Attar and Hussain, 2004). Several studies have
shown that the aggregation of earnings in aggregate accruals and
operating cash flows increases the power of earnings predic-
tion (Barth et al., 2001). Whilst other studies have shown that
operating cash flows have a higher predictive power than the
combining of operating cash flows with disaggregate accruals

https://doi.org/10.1016/j.jbef.2020.100414
2214-6350/© 2020 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
B. Noury, H. Hammami, A.A. Ousama et al.
(Stammerjohan and Nassiripour, 2001). In addition, some studies
have even shown that none of these models makes it possible
to establish a sufficiently significant difference in the predictive
power of future operating cash flows (McBeth, 1993).
The objective of this study is to compare the efficiency of
utilising different accounting data in order to explain future op-
erating cash flows for a sample that consists of 61 non-financial
French companies, during the period from 1999 to 2016. In ad-
dition, our paper aims to investigate the effect of the economic
crisis on the prediction of future cash flow, thus several data sets
were used. The research objective is thus to answer the following
question: Do operating cash flows allow a better indication than
earnings in predicting French companies’ future operating cash
flows?
Our study is important and contributes to the existing liter-
ature as follows. First, this is the first study that predicts future
cash flows based on different accounting methods and providing
evidence from France, using French companies over the period
1999–2016. France constitutes a good case for analysis, notably,
because of the dynamism of its economy. It represents the fifth
most powerful economy in the world and is responsible for 5%
of the world’s gross domestic product. Second, earnings consti-
tute an item that has been heavily criticised because of various
factors, such as timing, matching variability, or manipulation by
managers, which make it a potentially biased item. Hence, this
study aims to employ several methods and sample periods in
order to ensure the validity of the study’s findings. Third, the
findings of our study are very critical and useful for decision
makers, as the accurate prediction of future operating cash flows
is required for companies, without accounting manipulation, and
with components that have the maximum predictive capacity and
enhance profitability.
Fourth, this study contributes to the existing literature by pro-
viding evidence from France specifically, since most studies have
been conducted on US companies. In addition, France generates
6% of world trade and is very attractive to investors. Moreover,
France is the first home country for foreign direct investments
from Europe, and the second home country from the world, which
means that France has a predominant place in the world econ-
omy, without forgetting that this country is also very powerful in
terms of innovation. Indeed, in 2017, France held 15th place in the
rankings of the most innovative countries in the world, according
to the Global Innovation Index.
Fifth, our study aims to examine whether the prediction of
cash flows from operations based on current operating cash flows
and current earnings was significantly affected by the crisis. Be-
tween 2008 and 2017, public debt rose sharply as a result of the
cost of bank bailouts and neoliberal austerity policies. In France,
the weight of public debt almost doubled in around twenty years.
While it represented 56% of the gross domestic product in 1995,
and 65% in 2004, the symbolic threshold of 100% may be exceeded
in the near future, according to the statistical indicators from
the National Institute for Statistics and Economic Studies (INSEE).
After 2008, the increase in public debt was particularly strong and
brutal, due to the rescue of the banks by the public authorities.
Indeed, Euros 320 billion were provided to banks by the French
government between 2008 and 2009 to help them to continue
to lend money to companies and individuals. In addition, Euros
40 billion were dedicated to recapitalising banks that were in
strong financial difficulty through the French Financing Corpora-
tion, according to the Société de Financement pour l’Economie
Française (SFEF). It will thus be of value to see if the best way to
predict operating cash flows before the crisis was impacted upon
following this crisis.
The rest of the paper is organised as follow. Section 2 presents
the literature review. Section 3 introduces the research method.
Section 4 discusses the research findings, and Section 5 concludes
the paper.
2
Journal of Behavioral and Experimental Finance 28 (2020) 100414
2. Literature review
The study of the forecasting of future cash flows is essential
for detecting a deterioration in companies’ financial situations.
A good prediction of financial problems, using an appropriate
and valid approach, is thus a major concern. Some authors, such
as Beaver (1966) and Casey and Bartczak (1985), have focused
on a traditional approach to financial analysis in order to find
relevant indicators through which to prevent financial difficul-
ties for companies. This traditional approach is based on items
such as the working capital requirements, and the self-financing
capacity. However, these different items have been challenged
by some previous studies, including Golub and Huffman (1984),
because these items are not sufficiently objective to be subjective
in accounting manipulations. Chong (2012) studied the level of
the objectivity of the accrual-based accounting information, com-
pared to the cash-based accounting information. Gradually, the
traditional approach to financial analysis changed to a cash flow
analysis. Earlier studies have focused on explaining the value of
companies. Subramanyam (1996) relied on the financial markets
and employed some regression studies, whose purpose was to
study the explanatory power of the components of net income,
cash flows and aggregate accruals, in order to explain stock mar-
ket returns. One purpose of Subramanyam’s (1996) study was,
notably, to list and understand the economic reasons that allow
accruals to predict future yields. Sloan (1996) studied the link
between price stocks, accruals and cash flows.
Numerous studies on the prediction of future cash flows, espe-
cially in the United States and in the United Kingdom, have been
carried out and provided different results. Some studies have
shown that earnings are a reliable source of future cash flows
(Finger, 1994; Dechow et al., 1998; El-Sayed Ebaid, 2011), while
some other analysts have shown that this conclusion cannot be
drawn (Bowen et al., 1986). For instance, Finger (1994) used the
direct approach in order to study the relevance of earnings in
predicting future earnings and cash flows. He studied the cash
flows for a sample of 24 American companies between the years
1935 and 1987. His results showed that the earnings allow for
the establishment of a good prediction of the future revenues
and cash flows using the ordinary least squares regression (OLS)
method. In addition, his study showed that the current cash flows
allow for a better prediction of future cash flows, if compared to
current earnings. However, Bowen et al. (1986) did not show that
earnings are a better source for future cash flow prediction than
current cash flows, which is inconsistent with Greenberg et al.’s
(1986) study’s findings.
Several studies from the USA offer different findings. For in-
stance, a multiple linear regression was used by Dechow et al.
(1998) to provide evidence from the USA, using a sample of 667
firms over a 30-year period between 1963 and 1992. Their study
emphasising the FASB’s statement which considers that revenue
components are relevant and fundamental in predicting future
cash flows. Their study has shown that current earnings have
a higher predictive power than cash flows in the prediction of
operating cash flows.
However, this is inconsistent with results of Barth et al. (2001),
who observed the changes in accounts receivable, changes in
accounts payable, changes in inventories and depreciation and
amortisation. Their study has shown that disaggregating earnings
into cash flows and accruals make it possible to give a higher
predictive power to earnings in order to predict future operating
cash flows. They concluded that cash flows have a higher pre-
dictive power. A study by Stammerjohan and Nassiripour (2001)
surveyed a sample of more than 900 companies over 10 years,
and concluded that cash flows, combined with aggregate accruals,
have higher predictive power than earnings. However, this study
B. Noury, H. Hammami, A.A. Ousama et al.
has shown that the combination of cash flows with aggregate
accruals does not make it possible to obtain a better prediction
than a regression that is based on the cash flows themselves.
Yoder (2006), also studied US companies over 16 years, and
added a component, which is the growth of future sales and the
current level of sales. He concluded that the combination of cash
flows with ‘‘traditional’’ accruals (variation in accounts receivable,
in accounts payable, in stocks, and in accrual expenses) and these
new components (future sales and current level of sales) have
a higher predictive power than that of cash flows combined
with ‘‘traditional’’ accruals. Yoder (2006) also added that, as the
size of the company increases and sales volatility is stable, the
predictive power of this model increases. However, this assertion
is nuanced, because he observed that this differs according to
the sectors. Cheng and Hollie (2008) differentiated core cash
components from non-core cash components, showing that core
cash flow components have a higher power than non-core cash
flow components in predicting future operating cash flows.
Several relevant studies were obtained from companies in
other countries. For example, Al-Attar and Hussain (2004) fo-
cused on English companies that were listed on the London Stock
Exchange over 10 years, and concluded that the disaggregation
of earnings into accruals and operating cash flows improves the
prediction of future cash flows. In addition, this combination has
a higher predictive power that is up to three years ahead of
operating cash flows. The study that was conducted by Chotku-
nakitti (2005), which is based on Thai companies that are listed
on the Thai Exchange, suggests that cash flows provide a better
prediction than past earnings. Most of the studies conducted used
the OLS technique to develop a single or multiple linear model.
This estimation method is particularly suitable for this type of
study, because it minimises squared deviations between current
data and the regression model. To sum up, many studies have
decided on a relationship between cash flow and earnings by
electing one of these variables as the best predictor. Nevertheless,
McBeth (1993) revealed that neither the earnings or the cash
flows are a good predictor of future cash flows. McBeth (1993),
who carried out his study on 4415 companies between the years
1988 and 1990, a much shorter period, uses a simple regression.
Table 1 represents a summary of the opinions of authors on the
explanatory power of earnings and cash flows in the prediction
of future cash flows.
3. Research method
3.1. Data collection
The data consists of information relating to 61 French com-
panies that are quoted on the Euronext Paris Stock Exchange. To
have a homogeneous base, the sample includes nine sectors: basic
materials, consumer goods, consumer services, health, industry,
oil and gas, technology, telecommunications, and utilities. How-
ever, the financial and banking institutions were excluded, as it
would not be possible to generate consistent and reliable results,
considering that the regulations and the preparation of certain
financial statements differ between this type of institutions and
commercial and industrial businesses. The research period is from
1999 to 2016, therefore covering a scope of 18 years. In this study,
the sample was split into two parts, one from 1999 to 2007, and
the other from 2008 to 2016. We can compare the predictability
of future operating cash flows over a global period, with two
shorter periods, which are separated by a major economic event:
the financial crisis of 2007–2008. This enables us to examine the
effect of a financial crisis on the cash flow prediction models.
The data collected for this study are made up of operating cash
flows, net incomes, depreciations, as well as changes in accounts
3
Journal of Behavioral and Experimental Finance 28 (2020) 100414
receivable, changes in accounts payable, changes in inventories,
and the number of outstanding shares. In order to avoid the spu-
rious correlations of size effects and the heteroscedasticity issues,
the variables used are deflated by the number of outstanding
shares.
3.2. Model specifications
Previous studies have used a variety of statistical methods in
order to examine the predictability of operating cash flows. In
particular, some studies have used the OLS regression to establish
a model of predictions (e.g., Al-Attar and Hussain, 2004). The re-
gression ordinary least squares test is called a simple or multiple
linear regression. A simple regression is a linear model for which
the dependent variable is predicted from a single predictor. As for
multiple regression, this is a question of predicting the dependent
variable by a linear combination of at least two independent vari-
ables. In the case of a model containing independent explanatory
variables, the statistical model of the OLS regression is written:
Y = β 0 + Σj β j ∗ X j (j = 1, . . .n) (1)
where Y is the dependent variable, β is the model constant,
and Xj is the jth explanatory variable of the model, and ε is
a random error of zero expectancy and square sigma variance.
This OLS method corresponds to the minimisation of the sum of
the quadratic differences between the observed values and the
predicted values.
In Al-Attar and Hussain (2004), each regression model was
studied over a period of the past year, the past two years and then
the past three years. In our model, the dependent variable is the
future operating cash flows, which will be explained by multiple
independent variables. The independent variables are: the current
operating cash flows, the earnings, and the accruals. The cash
flows from the operations come from the cash flow statement.
According to the models, this will constitute both a dependent
variable and an independent one. Following Al-Attar and Hussain
(2004), we will use both the aggregation and disaggregation of
accruals in two separate models. The tool we used to conduct this
study are EViews. The three models we used for this study are the
following:
Model 1: Operating cash flows explained by earnings.
Model 2: Operating cash flows explained by operating cash flows,
combined with aggregate accruals.
Model 3: Operating cash flows explained by operating cash flows,
combined with disaggregate accruals.
The nine regression models that are developed and used in this
study are represented in Table 2. In the regression models, α , β ,
γ are coefficients, and ε is a random error of zero expectancy
and square sigma variance. Table 3 presents the description of
the variables that are used in Table 2. To realise our regression,
we tested the different hypotheses beforehand. The four main
assumptions are as follows: the linearity, the heteroscedasticity
(equal variances), the independence of the residuals (also called
autocorrelation), and the normality of the residuals. The statistics
that we used to study the predictive capacity of each model
are the F-statistics, the level of significance determined by the
p-value, the correlation coefficient of Pearson, and the Durbin-
Watson test statistics. The adjusted coefficient of determination
(adjusted R2 ) will allow us to compare the predictive power of
each regression model.
B. Noury, H. Hammami, A.A. Ousama et al.
Table 1
Summary of previous research studies’ findings.
Source: Summarised by authors from the existing literature.
Operating cash flows are a better predictor
Greenberg et al. (1986)
Dechow et al. (1998)
Jordan et al. (2007)
Lorek and Willinger (2009)
Habib (2010)
Chong (2012)
Hammami (2012)
Table 2
Summary of regression models.
Operating cash flows explained by earnings
OCFt = α 0 + α 1*Et-1 + ε
OCFt = α 0 + α 1*Et-1 + α 2*Et-2 + ε
OCFt = α 0 + α 1*Et-1 + α 2*Et-2 + α 3*Et-3 + ε
Operating cash flows explained by operating cash flows combined with aggregate accruals
OCFt = β 0 + β 1*OCFt-1 + β 2*AGGACCt-1 + ε
OCFt = β 0 + β 1*OCFt-1 + β 2*OCFt-2 + β 3*AGGACCt-1 + β 4*AGGACCt-2 + ε
OCFt = β 0 + β 1*OCFt-1 + β 2*OCFt-2 + β 3*OCFt-3 + β 4*AGGACCt-1 +
β 5*AGGACCt-2 + β 6*AGGACCt-3 + ε
Operating cash flows explained by operating cash flows combined with disaggregate accruals
OCFt = γ 0 + γ 1*OCFt-1 + γ 2*ARt-1 + γ 3*APt-1 + γ 4*INVt-1 + γ 5*DEPt-1 +
γ 6*OTHERt-1 + ε
OCFt = γ 0 + γ 1*OCFt-1 + γ 2*OCFt-2 + γ 3*ARt-1 + γ 4*ARt-2 + γ 5*APt-1 +
γ 6*APt-2 + γ 7*INVt-1 + γ 8*INVt-2 + γ 9*DEPt-1 + γ 10*DEPt-2 + γ 11*OTHERt-1 +
γ 12*OTHERt-2 + ε
OCFt = γ 0 + γ 1*OCFt-1 + γ 2*OCFt-2 + γ 3*OCFt-3 + γ 4*ARt-1 + γ 5*ARt-2 +
γ 6*ARt-3 + γ 7*APt-1 + γ 8*APt-2 + γ 9*APt-3 + γ 10*INVt-1 + γ 11*INVt-2 +
γ 12*INVt-3 + γ 13*DEPt-1 + γ 14*DEPt-2 + γ 15*DEPt-3 + γ 16*OTHERt-1 +
γ 17*OTHERt-2 + γ 18*OTHERt-3 + ε
Table 3
Description of the variable.
Variable Description of the variable
OCF Represents the cash flows from operations
E Represents the earnings, or the net income
AR Represents the change in accounts receivable: the increase
or decrease of debtors between the year t and t-1
AP Represents the change in accounts payable: the increase of
decrease in creditors between the year t and t-1
INV Represents the change in inventories: the increase or
decrease in stocks between the year t and t-1
DEP Represents the depreciation on the tangible assets
AGGACC Represents the aggregate accruals, and is computed by the
following formula: E - OCF
OTHER Represents the other accruals, and is computed by the
following formula: E − (OCF + AR + INV - AP - DEP)
4. Research findings
4.1. Descriptive statistics
The descriptive statistics of our samples is presented in
Table 4. Table 4 shows that the averages of earnings and operating
cash flows are positive, and the average for aggregate accru-
als is negative, which implies that, on average, the companies
chosen for this study generated a positive net cash flow due to
business activities. The average operating cash flows have the
highest value, at Euros 4.24 million over the period 1999–2016
(4.18 million over the period 1999–2007, and 4.66 million over
Journal of Behavioral and Experimental Finance 28 (2020) 100414
Earnings are a better predictor Neutral opinion
Bowen et al. (1986) McBeth (1993)
Finger (1994)
Supraiyadi (1998)
Barth et al. (2001)
Stammerjohan and Nassiripour (2001)
Al-Attar and Hussain (2004)
Chotkunakitti (2005)
Waldron and Jordan (2010)
El-Sayed Ebaid (2011)
1a One year lagged model
1b Two years lagged model
1c Three years lagged model
2a One year lagged model
2b Two years lagged model
2c Three years lagged model
3a One year lagged model
3b Two years lagged model
3c Three years lagged model
the period 2008–2016). The average earnings (2.03 million over
the period 1999–2016, 1.53 million over the period 1999–2007,
and 1.94 million over the period 2008–2016) are lower than
the average operating cash flows, regardless of the period. This
can be explained by the fact that the earnings are reduced by
depreciation and amortisation, which are non-cash expenses.
The variability of the earnings, which is measured by the
standard deviation, is 3.72 over the period 1999–2016, and 3.97
from 1999–2007, which is lower than the standard deviation of
the operating cash flows over the periods 1999–2016 and 1999–
2007), which is equal to 4.29 and 4.81, respectively. In addition,
the variation in the earnings is also lower than the aggregate ac-
cruals over the periods 1999–2016 (4.42) and 1999–2007 (5.05).
This means that the earnings are more stable than the operating
cash flows. Over the 2008–2016 post crisis period, the variability
of the earnings, measured by the standard deviation, is 4.13, and
is higher than the standard deviation of the operating cash flows
(4.01) and the aggregate accruals (4.07). This means that the cash
flows are more stable than the earnings.
According to Barth et al. (2001), disaggregated accruals can be
categorised as current accruals and long-term accruals. Accounts
receivable, accounts payable, and inventory changes can be clas-
sified in current accruals, while depreciation and amortisation
are classified in long-term accruals. Table 4 also shows that the
inventories, depreciations and accounts receivable have positive
averages, while the current aggregate and the other accruals have
negative averages. Over the 1999–2016 period, the variability,
measured by the standard deviation for inventories and accounts
receivable (6.39 and 7.28, respectively), is greater than the vari-
ability in depreciation, which is 1.92. For the 1999–2007 period,
the variability for inventories and accounts receivable (6.61 and
4
B. Noury, H. Hammami, A.A. Ousama et al. Journal of Behavioral and Experimental Finance 28 (2020) 100414

Table 4
Descriptive statistics of deflated variables.
Full sample 1999–2016
OCF E AR AP INV DEP AGGACC OTHER
Mean 4.244299 2.028525 0.386776 0.421566 0.283461 1.742186 −2.215792 −0.722495
Median 3.530000 1.820000 0.120000 0.130000 0.030000 1.160000 −1.660000 −0.470000
Maximum 33.38000 24.14000 105.6700 123.1500 115.8500 21.02000 35.17000 106.4000
Minimum −20.20000 −48.05000 −97.82000 −41.52000 −74.77000 0.000000 −56.08000 −94.08000
Std. Dev. 4.293804 3.724193 7.281592 6.353600 6.388703 1.924875 4.424508 8.824094
Skewness 0.650223 −4.645005 1.334043 12.37801 7.523515 4.100429 −2.531905 2.577301
Kurtosis 13.02664 70.76656 149.7620 261.5226 232.4798 34.24656 56.48729 87.74594
Sample 1999–2007
OCF E AR AP INV DEP AGGACC OTHER
Mean 4.180401 1.530455 0.666321 0.878361 0.381876 1.803953 −2.650109 −1.016448
Median 3.130000 1.430000 0.090000 0.150000 0.030000 0.990000 −1.570000 −0.430000
Maximum 33.38000 14.97000 105.6700 123.1500 115.8500 21.02000 35.17000 106.4000
Minimum −20.20000 −48.05000 −97.82000 −41.52000 −74.77000 0.000000 −56.08000 −94.08000
Std. Dev. 4.811963 3.975994 7.829687 6.687005 6.610788 2.252280 5.047985 9.571846
Skewness 1.671687 −4.874663 0.999836 10.53094 6.825708 3.153464 −3.320814 2.075072
Kurtosis 14.22788 55.02553 112.6537 210.5393 202.6030 19.90765 38.27666 65.67579
Sample 2008–2016
OCF E AR AP INV DEP AGGACC OTHER
Mean 4.657832 1.944699 0.660783 0.315392 0.438324 1.778324 −2.712987 −1.718707
Median 4.240000 1.910000 0.160000 0.12000 0.070000 1.220000 −2.000000 −0.750000
Maximum 21.96000 24.14000 72.21000 13.33000 14.52000 7.980000 23.54000 24.68000
Minimum −16.59000 −54.11000 −22.50000 −15.47000 −8.840000 0.000000 −45.19000 −81.36000
Std. Dev. 4.007952 4.134763 5.020470 2.620015 2.189685 1.754962 4.073612 6.439168
Skewness 0.729159 −5.014790 8.773522 0.250315 2.665547 1.427048 −2.924758 −6.832349
Kurtosis 7.214348 69.41346 120.8553 14.72767 19.36616 4.603843 33.77686 80.68191

Note: Variables definition and description are presented in Table 3.

7.83, respectively), is also greater than the variability in aggregate
accruals, which is 5.05. This may indicate that these long-term
accruals make a more stable contribution than current accruals.
4.2. Correlation between variables
Studying the correlation between the variables allows us to
see whether there is a relationship between the dependent and
independent variables. The study used Pearson’s correlation co-
efficients here to see whether there is multi-collinearity between
the explanatory variables in each regression model’s case. A
multi-collinearity problem is present if coefficients are greater
than 0.9 (Field, 2009; Franke, 2010; Coolican, 2019).
Tables 5–7 presents the correlation coefficients between the
operating cash flows, earnings, and aggregated accruals. All the
correlations are significant at the 0.05 level or the 0.01 level. The
current operating cash flows are correlated both very significantly
and positively with cash flows from operations in years t-1, t-
2, and t-3, and also with earnings in years t, t-1, t-2 and t-3.
However, current operating cash flows are highly correlated, both
significantly and negatively, with the current aggregated accruals,
t-1, t-2 and t-3.
As shown in Tables 5–6, it should also be noted that the
correlations between the current operating cash flow (OCF) and
the past operating cash flows (OCF Lag1 (t-1) and OCF Lag3 (t-
3)) are higher than the correlations between current operating
cash flows (OCF) and past earnings (E Lag1 (t-1) and E Lag3 (t-3)).
For instance, the correlation between OFC and OCF Lag1 (0.74)
and between OFC and OCF Lag3 (0.57) is higher, if compared to
the correlation between OFC and E Lag1 (0.41) and between OFC
and E Lag3 (0.27) over the period 1999–2016. This provides an
indication that the explanatory power of the operating cash flows
is better than that of earnings. Besides, it may reveal that there is
no correlation coefficient higher than 0.9, which shows that there
is no multicollinearity concerning our data.
The correlation coefficients between the operating cash flows
and all of the disaggregated accruals are all less than 0.9, which
shows that there is no problem of multi-collinearity with our
data. Our variables are therefore acceptable, and we can perform
the regression model in order to predict future operating cash
flows.
4.3. Best estimation predictors
Table 8 presents the results for the full sample period 1999–
2016. Table 8 shows that model 3c provides the best prediction
in explaining future operating cash flows (three years lagged
operating cash flows, combined with disaggregated accruals) over
the period from 1999–2016. This model is highly significant (p is
less than 0.001), and this model explains 67% of future operating
cash flows (adjusted R2 is equal to 0.67). The explanatory power
for the period 1999–2007 is 81% (see Table 9), and 79% for the
period from 2008–2016 (see Table 10).
The analysis of these three periods has shown that the finan-
cial crisis of 2007–2008 did not have an impact on the capacity
of the models to predict the future cash flows from operations.
A possible explanation is that each accrual component (changes
in accounts receivable, accounts payable, inventories and de-
preciation) incorporates ‘‘differing information content for fu-
ture operating cashflows’’ (Chong, 2012), and the aggregation of
earnings distorts the real contribution from the separate accrual
components. In addition, it should be noticed that even if the 3c
model is the model which best explains the prediction of future
operating cash flows. The results of the regressions also show
that the combination of operating cash flows and disaggregated
accruals has a significant power of prediction for one-year ahead
operating cash flows; but that power is less persistent in periods
beyond that one year.
Indeed, parts of the two year and three year-lag predictors
were insignificant in predicting future operating cash flows. This
may be explained by reasons that have been mentioned by
several previous studies (Dechow and Dichev, 2002; Richard-
son et al., 2006). For instance, Dechow and Dichev (2002) and
Richardson et al. (2006) mentioned that poor accrual quality is

5
 B. Noury, H. Hammami, A.A. Ousama et al.
Table 5
Correlation matrix for operating cash flows, earnings and aggregate accruals (1999–2016).
OCF OCF Lag1 OCF Lag2 OCF Lag3 E E Lag1 E Lag2 E Lag3 AGGACC AGGACC Lag1 AGGACC Lag2 AGGACC Lag3
OCF 1.000000 0,741351 0.657335 0.567691 0.497056 0.404952 0.317505 0.273158 −0.516784 −0.360799 −0.350833 −0.289794
OCF Lag1 0.741351 1.000000 0.676452 0.641082 0.409815 0.485097 0.413143 0.314491 −0.342346 −0.545357 −0.280474 −0.32200
OCF Lag2 0.657335 0.676452 1.000000 0.630857 0.156133 0.365317 0.456474 0.381018 −0.508058 −0.333253 −0.558522 −0.254992
OCF Lag3 0.567691 0.641082 0.630857 1.000000 0.191773 0.120469 0.341327 0.378335 −0.382611 −0.532277 −0.302556 −0.599371
E 0.497056 0.409815 0.156133 0.191773 1.000000 0.527834 0.251356 0.213274 0.485997 0.091924 0.080725 0.006697
6

E Lag1 0.404952 0.485097 0.365317 0.120469 0.527834 1.000000 0.531853 0.234263 0.112899 0.468424 0.136354 0.090988
E Lag2 0.317505 0.413143 0.456474 0.341327 0.251356 0.531853 1.000000 0.513292 −0.071839 0.092362 0.483076 0.127635
E Lag3 0.273158 0.314491 0.381018 0.378335 0.213274 0.234263 0.513292 1.000000 −0.064728 −0.093223 0.103571 0.514208
AGGACC −0.516784 −0.342346 −0.508058 −0.382611 0.485997 0.112899 −0.071839 −0.064728 1.000000 0.454076 0.432999 0.298505
AGGACC Lag1 −0.360799 −0.545357 −0.333253 −0.532277 0.091924 0.468424 0.092362 −0.093223 0.454076 1.000000 0.414030 0.412568
AGGACC Lag2 −0,350833 −0.280474 −0.558522 −0.302556 0.080725 0.136354 0.483076 0.103570 0.432999 0.414030 1.000000 0.369875
AGGACC Lag3 −0.289794 −0.322011 −0.254992 −0.599371 0.006697 0.090988 0.127635 0.514208 0.298505 0.412568 0.369875 1.000000

Journal of Behavioral and Experimental Finance 28 (2020) 100414

Notes: Threshold for the above probabilities are at the 0.01 and 0.05 level (2-tailed). Variables definition and description are presented in Table 3.
 B. Noury, H. Hammami, A.A. Ousama et al.
Table 6
Correlation matrix for operating cash flows, earnings and aggregate accruals (1999–2007).
OCF OCF Lag1 OCF Lag2 OCF Lag3 E E Lag1 E Lag2 E Lag3 AGGACC AGGACC Lag1 AGGACC Lag2 AGGACC Lag3
OCF 1.000000 0.764421 0.653293 0.568339 0.495276 0.367519 0.237441 0.174885 −0.564161 −0.442631 −0.427356 −0.381520
OCF Lag1 0.764421 1.000000 0.643041 0.633943 0.374882 0.477428 0.399079 0.261735 −0.434773 −0.582126 −0.276940 −0.373464
OCF Lag2 0.653293 0.643041 1.000000 0.574688 0.048724 0.325918 0.412994 0.358640 −0.629827 −0.356797 −0.611101 −0.243754
OCF Lag3 0.568339 0.633943 0.574688 1.000000 0.165650 0.049927 0.317445 0.309834 −0.430741 −0.602973 −0.281516 −0.669576
E 0.495276 0.374882 0.048724 0.165650 1.000000 0.575552 0.146788 −0.043663 0.437869 0.148768 0.080243 −0.185130
7

E Lag1 0.367519 0.477428 0.325918 0.049927 0.575552 1.000000 0.551945 0.125578 0.166650 0.436523 0.163554 0.052523
E Lag2 0.237441 0.399079 0.412994 0.317445 0.146788 0.551945 1.000000 0.563226 −0.106223 0.102100 0.468512 0.150587
E Lag3 0.174885 0.261735 0.358640 0.309834 −0.043663 0.125578 0.563226 1.000000 −0.222505 −0.151776 0.141567 0.498736
AGGACC −0.564161 −0.434773 −0.629827 −0.430741 0.437869 0.166650 −0.106223 −0.222505 1.000000 0.599420 0.518571 0.218873
AGGACC Lag1 −0.442631 −0.582126 −0.356797 −0.602973 0.148768 0.436523 0.102100 −0.151776 0.599420 1.000000 0.434857 0.431073
AGGACC Lag2 −0.427356 −0.276940 −0.611101 −0.281516 0.080243 0.163554 0.468512 0.141567 0.518571 0.434857 1.000000 0.367239
AGGACC Lag3 −0.381520 −0.373464 −0.243754 −0.669576 −0.185130 0.052523 0.150587 0.498736 0.218873 0.431073 0.367239 1.000000

Journal of Behavioral and Experimental Finance 28 (2020) 100414

Notes: Threshold for the above probabilities are at the 0.01 and 0.05 level (2-tailed). Variables definition and description are presented in Table 3.
 B. Noury, H. Hammami, A.A. Ousama et al.
Table 7
Correlation matrix for operating cash flows, earnings and aggregate accruals (2008–2016).
OCF OCF Lag1 OCF Lag2 OCF Lag3 E E Lag1 E Lag2 E Lag3 AGGACC AGGACC Lag1 AGGACC Lag2 AGGACC Lag3
OCF 1.000000 0.854186 0.735831 0.677880 0.614578 0.613404 0.475515 0.339693 −0.570053 −0.385226 −0.341335 −0.240884
OCF Lag1 0.854186 1.000000 0.821202 0.696503 0.613573 0.593967 0.562940 0.355757 −0.394677 −0.577105 −0.351040 −0.240611
OCF Lag2 0.735831 0.821202 1.000000 0.741444 0.491956 0.555546 0.501037 0.412852 −0.378112 −0.405146 −0.598316 −0.221413
OCF Lag3 0.677880 0.696503 0.741444 1.000000 0.410378 0.377833 0.514779 0.444106 −0.393051 −0.438402 −0.310943 −0.413252
E 0.614578 0.613573 0.491956 0.410378 1.000000 0.711739 0.550050 0.398775 0.297788 −0.001598 −0.013293 0.050438
8

E Lag1 0.613404 0.593967 0.555546 0.377833 0.711739 1.000000 0.691970 0.419191 −0.001017 0.314221 0.050504 0.099388
E Lag2 0.475515 0.562940 0.501037 0.514779 0.550050 0.691970 1.000000 0.564445 −0.002666 0.038083 0.393653 0.128530
E Lag3 0.339693 0.355757 0.412852 0.444106 0.398775 0.419191 0.564445 1.000000 0.004208 0.005579 0.084043 0.632361
AGGACC −0.570053 −0.394677 −0.378112 −0.393051 0.297788 −0.001017 −0.002666 0.004208 1.000000 0.464559 0.399151 0.344106
AGGACC Lag1 −0.385226 −0.577105 −0.405146 −0.438402 −0.001598 0.314221 0.038083 0.005579 0.464559 1.000000 0.465498 0.384716
AGGACC Lag2 −0.341335 −0.351040 −0.598316 −0.310943 −013293 0.050504 0.393653 0.084043 0.399151 0.465498 1.000000 0.354158
AGGACC Lag3 −0.240884 −0.240611 −0.221413 −0.413252 0.050438 0.099388 0.128530 0.632361 0.344106 0.384716 0.354158 1.000000

Journal of Behavioral and Experimental Finance 28 (2020) 100414

Notes: Threshold for the above probabilities are at the 0.01 and 0.05 level (2-tailed). Variables definition and description are presented in Table 3.
B. Noury, H. Hammami, A.A. Ousama et al. Journal of Behavioral and Experimental Finance 28 (2020) 100414

Table 8 Table 10
The regression results for full sample period 1999–2016. The regression results for Sub-sample period 2008–2016.
The regression results for model 1 The regression results for model 1
Model Adjusted R2 F-statistic p-value Durbin Watson Model Adjusted R2 F-statistic p-value Durbin Watson
(significance) (significance)
1a 0.158271 194.611200 p < 0.001 0.880517 1a 0.189647 114.972600 p < 0.001 0.462279
1b 0.193109 117.670700 p < 0.001 0.779746 1b 0.323917 103.050000 p < 0.001 0.531823
1c 0.196472 75.494340 p < 0.001 0.681844 1c 0.380736 75.803250 p < 0.001 0.458673
The regression results for model 2 The regression results for model 2
Model Adjusted R2 F-statistic p-value Durbin Watson Model Adjusted R2 F-statistic p-value Durbin Watson
(significance) (significance)
2a 0.456900 436.783700 p < 0.001 2.328621 2a 0.610327 382.383200 p < 0.001 1.949912
2b 0.559695 310.843600 p < 0.001 1.859162 2b 0.734686 295.911200 p < 0.001 1.856721
2c 0.604333 233.671000 p < 0.001 0.681844 2c 0.777467 213.534500 p < 0.001 1.962732
The regression results for model 3 The regression results for model 3
Model Adjusted R2 F-statistic p-value Durbin Watson Model Adjusted R2 F-statistic p-value Durbin Watson
(significance) (significance)
3a 0.587699 247.121200 p < 0.001 2.089152 3a 0.654491 154.752200 p < 0.001 1.771868
3b 0.663879 161.478200 p < 0.001 2.018679 3b 0.749093 106.986700 p < 0.001 1.805652
3c 0.673899 105.934200 p < 0.001 2.094193 3c 0.787154 75.992020 p < 0.001 1.928194

Table 9
The regression results for Sub-sample period 1999–2007. indicates that the best model is the Model 2c (three year lagged
The regression results for model 1 operating cash flows, combined with aggregate accruals) (See
Model Adjusted R2 F-statistic p-value Durbin Watson Table 11).
(significance) However, among the AIC and SC criteria, the criterion which
1a 0.128529 72.825460 p < 0.001 0.857941 gives the best indication is the AIC criterion. Hence, we can
1b 0.170159 44.675540 p < 0.001 0.694828 conclude that the model which has the best capacity for the pre-
1c 0.146909 21.951950 p < 0.001 0.470358
diction of future operating cash flows is the model that is based
The regression results for model 2 on the operating cash flows, combined with the disaggregated
Model Adjusted R2 F-statistic p-value Durbin Watson accruals.
(significance) Moreover, if we make a ranking that is based on the number
2a 0.403025 164.390100 p < 0.001 2.303916 of lagged years, the Model 3, using the operating cash flows
2b 0.553462 133.001800 p < 0.001 1.722802 combined with the disaggregated accruals, is the one which,
2c 0.650708 114.328300 p < 0.001 1.33021
globally, has the best explanatory power (see Table 12), which
The regression results for model 3 supports our previous findings, that operating cash flows is the
Model Adjusted R2 F-statistic p-value Durbin Watson best model with which to predict future operating cash flows.
(significance)
3a 0.645691 148.917700 p < 0.001 1.783316 5. Conclusion and future perspectives
3b 0.796000 139.520000 p < 0.001 1.86944
3c 0.808157 86.421990 p < 0.001 2.027684
This study investigates the ability of the cash-based and
accrual-based accounting data for predicting future cash flows
from operations in the French context. Our sample consists of
implied by the estimation errors and opportunistic manipula- 61 non-financial, French listed companies, using annual data
tions. Moreover, Chong (2012) offered another possible expla- over the period from 1999–2016. Several statistical analyses and
nation regarding the ‘‘short term nature of accruals as it can empirical models were utilised and implemented in order to
predominantly consist of working capital changes that crystallise examine the best model with which to predict future cash flows.
into operating cash flows within one year’’. In addition, the AIC and SC criteria were used to validate our
findings.
Our regression results clearly indicate that the operating cash
4.4. Additional criteria for findings validation
flow model, combined with the disaggregated accruals, based on
the three years accounting data, is the best model with which to
In order to examine the validity of our findings, we include
predict future cash flows over the full sample period, 1999–2016.
extra indicators to validate the models employed. Two criteria This finding has been validated by the AIC and SC criteria. The
are used to determine the level of explanatory power: the Akaike predictive power of this model is indeed 67.39%, suggesting that
information criterion (AIC) and the Schwarz criterion (SC). The this model is the most robust in the prediction of future operating
less these criteria appear as high for a specific model, the more cash flows.
this model has an explanatory power in predicting the future This study has, therefore, shown that the fact of disaggregat-
operating cash flows. ing earnings into operating cash flows improves the ability to
The adjusted R2 in Table 11 shows that the validity of the forecast future operating cash flows. These results are consistent
results is confirmed in almost all the cases by the AIC and SC with many previous studies (Al-Attar and Hussain, 2004; Barth
criteria. Indeed, the results for Model 3c (three year lagged oper- et al., 2001). This study has also shown that the accrual-based
ating cash flows, combined with disaggregated accruals), which accounting method is stronger than a cash-based accounting one.
has the best capacity for the prediction of future operating cash Indeed, this study confirms an assertion that has been revealed by
flows, according to the adjusted R2 . In addition, this corresponds a large number of studies, namely, that operating cash flows are
to the same model, which is indicated thanks to the AIC and SC of particular importance in the prediction of future operating cash
criteria, except over the period 2008–2016, where the SC criterion flow, particularly when combined with disaggregated accruals.
9
B. Noury, H. Hammami, A.A. Ousama et al. Journal of Behavioral and Experimental Finance 28 (2020) 100414

Table 11
Summary of the adjusted R2 , AIC and SC for each model.
Sample Models Adjusted AIC SC
period R2
1a One year lagged earnings model 0.157457 5.616759 5.626294
1b Two years lagged earnings model 0.193109 5.576152 5.591163
1c Three years lagged earnings model 0.196472 5.535478 5.556544
2a One year lagged OCF combined with aggregate accruals model 0.456900 5.178590 5.192893
2b Two years lagged OCF combined with aggregate accruals model 0.559695 4.972471 4.997489
1999 – 2016
2c Three years lagged OCF combined with aggregate accruals model 0.604333 4.830296 4.867162
3a One year lagged OCF combined with disaggregate accruals model 0.587699 4.906889 4.940263
3b Two years lagged OCF combined with disaggregate accruals model 0.663879 4.710597 4.775643
3c Three years lagged OCF combined with disaggregate accruals model 0.673899 4.649855 4.749920
1a One year lagged earnings model 0.128529 5.812024 5.829198
1b Two years lagged earnings model 0.170159 5.793682 5.822184
1c Three years lagged earnings model 0.146909 5.775115 5.817767
1999 – 2007 2a One year lagged OCF combined with aggregate accruals model 0.403025 5.435755 5.461515
2b Two years lagged OCF combined with aggregate accruals model 0.553462 5.178611 5.226114
2c Three years lagged OCF combined with aggregate accruals model 0.650708 4.890229 4.964870
3a One year lagged OCF combined with disaggregate accruals model 0.645691 4.922162 4.982269
3b Two years lagged OCF combined with disaggregate accruals model 0.796000 4.413536 4.537045
3c Three years lagged OCF combined with disaggregate accruals model 0.808157 4.322574 4.525170
1a One year lagged earnings model 0.191311 5.441602 5.458776
1b Two years lagged earnings model 0.323917 5.260730 5.289232
1c Three years lagged earnings model 0.380736 5.261445 5.304097
2a One year lagged OCF combined with aggregate accruals model 0.610327 4.711478 4.737238
2b Two years lagged OCF combined with aggregate accruals model 0.734686 4.329967 4.377470
2008 – 2016
2c Three years lagged OCF combined with aggregate accruals model 0.777467 4.246061 4.320701
3a One year lagged OCF combined with disaggregate accruals model 0.654491 4.599302 4.659409
3b Two years lagged OCF combined with disaggregate accruals model 0.749093 4.292467 4.415975
3c Three years lagged OCF combined with disaggregate accruals model 0.787154 4.233130 4.435726

Table 12
Summary of the best model’s abilities based on adjusted R2 , AIC and SC.
Sample period One year lagged model with One year lagged model with One year lagged model with
higher adjusted R2 lower AIC lower SC
1999 – 2016 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.587699) accruals model (AIC = 4.906889) accruals model (SC = 4.940263)

1999 – 2007 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.645691) accruals model (AIC = 4.922162) accruals model (SC = 4.982269)

2008 – 2016 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.654491) accruals model (AIC = 4.599302) accruals model (SC = 4.659409)

Sample period Two years lagged model with Two years lagged model with Two years lagged model with
higher adjusted R2 lower AIC lower SC

1999 – 2016 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.663879) accruals model (AIC = 4.710597) accruals model (SC = 4.775643)

1999 – 2007 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.79600) accruals model (AIC = 4.413536) accruals model (SC = 4.537045)

2008 – 2016 OCF combined with disaggregate
accruals model (R2 = 0.749093)
Sample period Three years lagged model with
higher adjusted R2
1999 – 2016 OCF combined with disaggregate
accruals model (R2 = 0.673899)
OCF combined with disaggregate
accruals model (AIC = 4.292467)
Three years lagged model with
lower AIC
OCF combined with disaggregate
accruals model (AIC = 4.649855)
OCF combined with aggregate
accruals model (SC = 4.377470)
Three years lagged model with
lower SC
OCF combined with disaggregate
accruals model (SC = 4.749920)

1999 – 2007 OCF combined with disaggregate OCF combined with disaggregate OCF combined with disaggregate
accruals model (R2 = 0.808157) accruals model (AIC = 4.322574) accruals model (SC = 4.525170)

2008 – 2016 OCF combined with disaggregate OCF combined with disaggregate OCF combined with aggregate
accruals model (R2 = 0.787154) accruals model (AIC = 4.233130) accruals model (SC = 4.320701)

Interestingly, the findings obtained by using Model 3c were
very similar for both periods (pre-crisis period, 1999–2007, and
the post-crisis period, 2008–2016), indicating that a financial
crisis does not have a significant effect on cash flow prediction.
Our findings are important for different parties, including share-
holders, bankers, managers and investors, since they help them
in predicting the companies’ future cash flow, which is crucial
for their financing and investment decisions. During a major
crisis, financing and business investments are generally frozen for
10
economic reasons. Moreover, the decline in investment is much
greater than the decline in economic activity. Lots of companies
that are weakened due to the collapse of their cash flows, are
forced to reduce or stop their production. Most are unable to
anticipate the future demand. Managers and shareholders are
then totally occupied in saving their company, and significantly
reduce their expenses, forgetting to project themselves into the
post-crisis world.
B. Noury, H. Hammami, A.A. Ousama et al.
The renunciation of long-planned investments generally
shows the desire to conserve cash flows as a precautionary
measure. However, this renunciation should not happen to the
detriment of the growth of the company. The use of external
resources, especially subcontracting, allows for the increase of the
proportion of variable costs in the total expenses, and represents
an alternative that needs to be taken into consideration.
Another possible explanation in the renunciation of invest-
ments is related to the uncertainty of future demand. Indeed, after
a major crisis, sales suffer a sharp decrease in many sectors, and
this may continue for an indefinite period. Despite weak sales
and revenues, companies cannot significantly reduce their pay-
rolls or extend supplier payment terms, rents and interest. This
weakens the financial situation of companies, notably, those of
substantial size, whose capacity to react to external disturbances
is sometimes limited.
Whatever the nature of the investment, be it financial, tan-
gible, or intangible, an economic crisis constrains all companies
to re-evaluate, or even, in some cases, to cancel their exigencies
in terms of return on investment. Decisions taken in such an
economic context must be taken after the reassessment of the
relevance of their financing and investment projects. Moreover,
a crisis should encourage the different parties to redesign a new
economic model, which might even lead to new opportunities for
companies.
As part of a future complementary study, we might then
extend the research to the non-listed companies. In addition,
another study might predict cash flow for companies in the
financial sector. Applying the same methodology in future studies
would help in filling the gap in the existing literature. Indeed,
the vast majority of the studies carried out have financial institu-
tions, as well as non-listed companies. We could also carry out a
comparative study between developed and developing countries.
This would permit us to focus on economies that consequently
have different legislations and norms. However, it may be difficult
to establish a comparison with the previous studies, if there are
insufficient similarities between the countries and the companies
studied.
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