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JOURNAL OF ACCOUNTING AND FINANCE
A Comparison: Accrual Versus Cash Flow Based Financial Measures’ Performance in Predicting Business Failure
Author(s): Shyam Bhandari, Vince Showers, Anna J. Johnson-Snyder
Citation: Shyam Bhandari, Vince Showers, Anna J. Johnson-Snyder, (2019) "A Comparison: Accrual Versus Cash Flow Based Financial Measures’ Performance in Predicting Business Failure", Journal of Accounting and Finance, Vol. 19, ss. 6, pp. 11-25
Article Type: Research paper
Publisher: North American Business Press
Abstract:
Most business failure prediction models use accrual-accounting-based financial ratios; a few used cashflow-based measures. Comparison of the two approaches on the same dataset are rare. This study investigates the prediction accuracy of six accrual-accounting, six cash-flow-based, and the combined 12 ratios on companies’ financial data collected during the 2008-2010 recession. Careful to avoid prior
research pitfalls (Sharma, 2001), we perform many analyses on a matched set of 50 failed and 50 nonfailing companies. We propose that cash-flow-based measures are better predictors but find that a mixed model of two accrual-accounting- and two cash-flow-based ratios perform significantly better than other models.
