Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association
ABSTRACT We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative as...
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| Veröffentlicht in: | Journal of accounting research 2022-09, Vol.60 (4), p.1551-1582 |
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| container_title | Journal of accounting research |
| container_volume | 60 |
| creator | GREEN, JEREMIAH LOUIS, HENOCK SANI, JALAL |
| description | ABSTRACT
We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible‐intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association. |
| doi_str_mv | 10.1111/1475-679X.12414 |
| format | Article |
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We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible‐intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.</description><identifier>ISSN: 0021-8456</identifier><identifier>EISSN: 1475-679X</identifier><identifier>DOI: 10.1111/1475-679X.12414</identifier><language>eng</language><publisher>Chicago: Blackwell Publishing Ltd</publisher><subject>accrual accounting ; Accrual basis accounting ; accrual quality ; accruals ; capitalization ; Cash flow ; cash flows ; earnings quality ; Intangible assets ; intangible capital ; intangible investments ; Investments ; Market value ; scaling by book value of assets ; Usefulness</subject><ispartof>Journal of accounting research, 2022-09, Vol.60 (4), p.1551-1582</ispartof><rights>2021 The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.</rights><rights>2022 The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c3044-460b5fc560d956e603252c6aec87d8fe68af4d5c87c502acde2aff10374f6d723</citedby><cites>FETCH-LOGICAL-c3044-460b5fc560d956e603252c6aec87d8fe68af4d5c87c502acde2aff10374f6d723</cites><orcidid>0000-0002-3683-5136</orcidid></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://onlinelibrary.wiley.com/doi/pdf/10.1111%2F1475-679X.12414$$EPDF$$P50$$Gwiley$$H</linktopdf><linktohtml>$$Uhttps://onlinelibrary.wiley.com/doi/full/10.1111%2F1475-679X.12414$$EHTML$$P50$$Gwiley$$H</linktohtml><link.rule.ids>314,780,784,1417,27924,27925,45574,45575</link.rule.ids></links><search><creatorcontrib>GREEN, JEREMIAH</creatorcontrib><creatorcontrib>LOUIS, HENOCK</creatorcontrib><creatorcontrib>SANI, JALAL</creatorcontrib><title>Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association</title><title>Journal of accounting research</title><description>ABSTRACT
We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible‐intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.</description><subject>accrual accounting</subject><subject>Accrual basis accounting</subject><subject>accrual quality</subject><subject>accruals</subject><subject>capitalization</subject><subject>Cash flow</subject><subject>cash flows</subject><subject>earnings quality</subject><subject>Intangible assets</subject><subject>intangible capital</subject><subject>intangible investments</subject><subject>Investments</subject><subject>Market value</subject><subject>scaling by book value of assets</subject><subject>Usefulness</subject><issn>0021-8456</issn><issn>1475-679X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2022</creationdate><recordtype>article</recordtype><recordid>eNqFkM9OAjEQxhujiYievTbxykLbbbu7R0JEMSQkCom3pnRbKFm62C4Sbr6Db-iTuMsaPTqX-ZPffDP5ALjFqI_rGGCasIgn2WsfE4rpGej8Ts5BByGCo5QyfgmuQtgghDIW4w5YTFwl3couCw0n7l2HaqtdFXrwRcnCulUPSpfDaq3h3Ou6su7UDJXye1l8fXyOZFjDcVEe4DCEUllZ2dJdgwsji6BvfnIXLMb389FjNJ09TEbDaaRiRGlEOVoyoxhHeca45igmjCgutUqTPDWap9LQnNWdYohIlWsijcEoTqjheULiLrhrdXe-fNvXz4tNufeuPikIzxLGWYIaatBSypcheG3Eztut9EeBkWi8E41TonFKnLyrN2C7oVXpbPjjU5xmhDHMa4S3yMEW-vifoniaDZ9b7W8Uv3vV</recordid><startdate>202209</startdate><enddate>202209</enddate><creator>GREEN, JEREMIAH</creator><creator>LOUIS, HENOCK</creator><creator>SANI, JALAL</creator><general>Blackwell Publishing Ltd</general><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0002-3683-5136</orcidid></search><sort><creationdate>202209</creationdate><title>Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association</title><author>GREEN, JEREMIAH ; LOUIS, HENOCK ; SANI, JALAL</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c3044-460b5fc560d956e603252c6aec87d8fe68af4d5c87c502acde2aff10374f6d723</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2022</creationdate><topic>accrual accounting</topic><topic>Accrual basis accounting</topic><topic>accrual quality</topic><topic>accruals</topic><topic>capitalization</topic><topic>Cash flow</topic><topic>cash flows</topic><topic>earnings quality</topic><topic>Intangible assets</topic><topic>intangible capital</topic><topic>intangible investments</topic><topic>Investments</topic><topic>Market value</topic><topic>scaling by book value of assets</topic><topic>Usefulness</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>GREEN, JEREMIAH</creatorcontrib><creatorcontrib>LOUIS, HENOCK</creatorcontrib><creatorcontrib>SANI, JALAL</creatorcontrib><collection>ECONIS</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of accounting research</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>GREEN, JEREMIAH</au><au>LOUIS, HENOCK</au><au>SANI, JALAL</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association</atitle><jtitle>Journal of accounting research</jtitle><date>2022-09</date><risdate>2022</risdate><volume>60</volume><issue>4</issue><spage>1551</spage><epage>1582</epage><pages>1551-1582</pages><issn>0021-8456</issn><eissn>1475-679X</eissn><abstract>ABSTRACT
We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible‐intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.</abstract><cop>Chicago</cop><pub>Blackwell Publishing Ltd</pub><doi>10.1111/1475-679X.12414</doi><tpages>32</tpages><orcidid>https://orcid.org/0000-0002-3683-5136</orcidid></addata></record> |
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| subjects | accrual accounting Accrual basis accounting accrual quality accruals capitalization Cash flow cash flows earnings quality Intangible assets intangible capital intangible investments Investments Market value scaling by book value of assets Usefulness |
| title | Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association |
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