Cash flow accounting and the cost of debt

Lari Dashtbayaz, Mahmoud (2011) Cash flow accounting and the cost of debt. Doctoral thesis (DPhil), University of Sussex.

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Abstract

The aim of this study is to examine why firms may manipulate not just their earnings but also their cash flows, and to investigate the effects of this behaviour in debt markets with respect to the cost of debt. This research addresses current concerns about accounting rules (both GAAP and IFRS) which allow companies discretion in the presentation of their operating cash flow in financial statements. Using a sample of 8,684 UK and 23,935 USA firm-years from 1998 to 2010, the reported operating cash flow is decomposed into two components, unmanaged and managed, in order to examine the association between the estimated discretionary part of operating cash flow and the cost of debt. The results show that the cost of debt has a significantly positive association with the managed component of operating cash flows. By using path analysis, it is further shown that the effect of cash flow management in increasing the cost of debt is largely through its impact on accounting quality. Also it is found that the market positively prices abnormal operating cash flow information when firms experience financial problems, especially when companies are faced with low cash flows.

Item Type: Thesis (Doctoral)
Keywords: Cost of debt, Cash flow management, Abnormal operating cash flow, GAAP discretion
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences > HG Finance > HG3691 Credit. Debt. Loans
H Social Sciences > HG Finance > HG4001 Finance management. Business finance. Corporation finance
Depositing User: Library Cataloguing
Date Deposited: 25 Jul 2011 10:28
Last Modified: 17 Aug 2015 13:30
URI: http://sro.sussex.ac.uk/id/eprint/7028

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