外文翻译收入和现金流量的定价和权责发生制的确认.docx
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外文翻译收入和现金流量的定价和权责发生制的确认.docx
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外文翻译收入和现金流量的定价和权责发生制的确认
本科毕业论文(设计)
外文翻译
原文:
Thepricingofearningsandcashflowsandanaffirmationofaccrualaccounting
Thispaperexaminesacoreideainaccounting,drummedintoeverybeginningaccountingstudent:
accrualaccounting,ratherthancashaccounting,isappropriateforbusinessreporting.Accountinggoesbeyondamerecashbook,toreport(accrual)earningsratherthancashflowasthemeasureofvaluedadded.Thepaperinvestigateswhethercommonsharesarepricedinthestockmarketaccordingtoaccountingprescriptionsonhowearningsandcashflowsaffectshareholders’equity.
Todevelopanempiricalspecificationthatincorporatestheprescriptions,thepaperfirstformallylaysouthowearningsandcashflowsrelatetoshareholders’equityintheaccountingsystem.Withafocusontheshareholder,itmakesthestandarddistinctioninbothvaluationtheoryandaccountingbetweenthebusinessandtheequityclaimonthebusiness.Underaccrualaccounting,earningsfromthebusinessaddtoboththebookvalueofassetsandthebookvalueoftheequityclaimonthoseassets.This,ofcourse,iswellappreciated.Lessappreciated,however,areprescriptionsaboutcashflowthatareimbeddedinaccrualaccounting:
netcashflowfromabusiness—commonlyreferredtoasfreecashflow—hasnoeffectofthebookvalueoftheequity(weshow)butreducesthebookvalueofbusinessassets,dollar-for-dollar.Accrualaccountingtreatscashflownotasanadditiontobusinessvaluebutasapayoutfromthebusiness.Thatpayoutreducesthevalueofbusinesswithoutaffectingthecum-dividendvalueoftheequity.
Theempiricalanalysisshowsthatthestockmarketpricesbusinessfirmsandequityclaimsonfirmsaccordingtothisprescription.Wefindthat,onaverage,annualchangesinboththemarketvalueofthefirmandthemarketvalueofequitysharesarepositivelyrelatedtoannualearnings.However,givenearnings,changesinthemarketvalueofthefirmarenegativelyrelatedtocashflowsfromthefirm.Indeed,adollaroffreecashflowis,onaverage,associatedwithapproximatelyadollarlessinmarketvalueofthefirm,whilechangesinthemarketvalueofequityareunrelatedtothefreecashflowthatbusinessgenerates.Furthermore,separatingouttheinvestmentportionofflowfreecashflow,wefindthattheremaining‘‘cashflowfromoperations’’isalsoassociatedwithlowermarketvalueforthefirm,dollar-for-dollar,andisunrelatedtochangesinequityvalue.
Theresultwithrespecttoearningsis,ofcourse,notnew;thefindingofapositivecorrelationbetweenearningschangesandstockreturnsintheBallandBrown(1968)paperisanaffirmationofaccrualaccounting,replicatedmanytimes.Dechow(1994)andDechowetal.(1998),amongothers,affirmtheimportanceofaccrualsovercashflowsunderavarietyofconditions.Ouranalysisexploresanadditionalfeatureofaccounting:
notonlydoesaccrualaccountingpromoteearningsastheprimaryvaluationattribute(ratherthancashflows),butactuallytreatscashflowsasirrelevanttoequityvaluation.Ourempiricalanalysisaffirms.
Theresultwithrespecttocashflowsmaybesurprising,foronetypicallythinksofcashflowasa‘‘good’’—morecashflowmeanshighervalue—andanalystsoftenrecommendstocksofcompaniesthathavepositivecashflow.However,ourresultsarenotsurprisingwhenonerecognizesthateconomictheoryalsoaffirmstheaccounting:
accrualaccountingoperatesinawaythatrecognizesMillerandModigliani(1961)notionofdividenddisplacementandthecomplementarynotionofdividendirrelevance.Justasdividends,thedistributionofcashtoshareholders,reducetheequityclaimbutdonotaffectthecum-dividendvalueofequity,freecashflow,thecorrespondingdistributionfromthefirm(toallclaimants),isadividendfromthefirmthatreducesthevalueofthefirmbutdoesnotaffectthecum-dividendvalueofthefirm.Becausetheequityclaimisonboththevalueofthefirmandthecashflow,itisunaffectedbythecashflowbutratherbythecum-dividendvalueofthefirm.Inshort,accrualaccountinghonorsthefoundationalprinciplesofmodernfinance,andthestockmarketpricesfirmsandequityclaimsaccordingtotheseprinciples.
Theresultsinthepaperseeminglyconflictwithpreviousresearch.InRayburn(1986),Wilson(1987),Dechow(1994),Bowenetal.(1987),Clubb(1995),andFrancisetal.(2003),amongothers,cashflowvariablesinreturnregressionsloadwithapositivecoefficient,withandwithoutearningsincluded.Thedifferencerevolvesaroundtheissueofspecification.Thispaperdevelopsaregressionspecificationquitemethodically(inSect.1)sothedifferencesarewellunderstood.Indeed,whilethepricingofearningsandcashflowsisoursubstantiveconcern,theissueofspecificationincapitalmarketresearchisasubtext.Inthisrespect,thepaperrespondstotheHolthausenandWatts’(2001)criticismthatcapitalmarketsresearchinaccountinghashadlittletocontributetonormativeissuesfacedbystandardsetters.Withattentiontospecification—whichHolthausenandWattsargueisnecessary—weareabletodrawconclusionsaboutaverybasicnormativeissue,theuseofcashaccountingversusaccrualaccountingforbusinessreporting.Ourresultinnowaynullifiestheresultsinotherpapers;indeed,weareabletoreconcilewhatlooklikeverydifferentfindingstotheearlierresults.
Theabilityofearningstoexplainchangesinmarketvaluesdepends,ofcourse,onhowtheearningsaremeasured.Indeed,oneexpectscashflowtobeinformativeifearningsarepoorlymeasured,andthecomparisonofcashflowtoearningsisastandarddiagnosticinearningsqualityanalysis(see,forexample,Sloan1996;DechowandDichev2002;Dechowetal.2008).Webuildspecificationsthatexplicitlyrecognizethatcashflows(anddividends)canhaveinformationcontentinresponsetopoorearningsmeasurement.Nevertheless,usingUSGAAPearningsmeasures,wefindthatcashflows,onaverage,donotexplainchangesinstockprices.Theemphasisthatthefindingsapplyonaverageisimportant,forGAAPis(presumably)designedforbroadapplicationinthecross-section.Theaverageresultinnowayabrogatesthefindingsthataccrualaccountingmaybedeficientandcashflowsrelevantinparticularcontexts.
1Specificationofreturnregressionsinvolvingearningsandcashflows
Whiledocumentingtherelevantcorrelations,mostpriorresearchthatrelatesstockpricesandreturnstoearnings,cashflows,orbothdoesnotusepre-specifiedmodels.SomeexceptionsareJennings(1990),whoaddressessomespecificationissuesinearningsandcashflowsregressions,andBarthetal.(1999),whorefertovaluationmodelstodevelopregressionequationsinvolvingearningsandcashflows.Inthispaperwedevelopaspecificationandthenputittothetest.Thespecificationisdictatedbytheaccountingstructurethatproducesearningsandcashflowsnumbers.Wefirstlayoutthisstructure(inSect.1.1),thenspecifypricingequationsthatincorporatethestructure(inSect.1.2),whichwethentaketothedata(inSect.2).Ageneraldiscussionofspecificationofreturnsregressionscontainingaccountingnumbersisinthe‘‘Appendix’’.
1.1Accountingrelationsthatgovernaccrualaccounting
Accrualaccounting,atleastnominally,trackstheevolutionofshareholders’equityoverdiscreteperiods;ineachperiod,accountingcalculatesanumber,earnings,whichupdateshareholders’equityviatheclosingentry.Welayoutasetofaccountingoperationsthatamounttoprescriptionsthatgoverntheaccounting.Westartwithcashflows.
1.1.1Cashflowrelations
Thefirm(thebusinessoperations)isdistinguishedfromtheclaimsonthefirm,asinthetypicalbalancesheet.Correspondingly,cashflowsgeneratedbyabusiness(freecashflow)aredistinguishedfromthosepaidtoclaimants.Thestandardcashconservationequationequatesthetwo:
FreeCashFlow=d+F………
(1)
Astheanalysisfocusesonthepricingofcommonshares,thedividendtocommonshareholders,d,isdistinguishedfrompaymentstoallotherclaimants(suchasbondholdersandpreferredstockholders),F.Distributionstodebtissuers—bythepurchaseoffinancialassetswiththecash—arealsoanapplicationoffreecashflow,soFreferstocashpaymentstonetdebtholders(debtholdersanddebtissuers).Dividends,d,arenetcashdistributionstoshareholders(dividendsplusstockrepurchaseslessstockissues).
Itiscommontodistinguishthetwocomponentsoffreecashflow,cashfromoperations(C)andcashinvestment(I):
FreeCashFlow=C-I.ThedistinctionbetweenCandIisanaccrualaccountingissue,however,involvinganallocationtoperiodicincomestatementsthatdoesnotbearonnetcashgenerated.Todelineateclearlybetweencashandaccrualaccounting,ourreferencewillbetothenetcashfromoperations,thatis,freecashflow.However,attheendofthepaperwewilldistinguishbetweenCandItoexaminethepricingofcashfromoperations(C)withwhichpreviouspapershavelargelybeenconcerned.SowewilldenotefreecashflowasC-Iwiththereminderthatthisreferstothenetcashflowfromoperations.
1.1.2Accrualaccountingforthefirm
AccrualaccountingadjustsfreecashflowsfromoperationsonthelefthandsideofEq.1toyieldincomefromoperations,asfollows:
OI=(C-I)+I+Operatingaccruals………
(2)
Theadjustmentsareaddedtonetoperatingassetsonthebalancesheet:
△NOA=I+Operatingaccruals…......(3)
WhileEq.3distinguishesbetweencashinvestment(likepurchasesofequipment)andoperatingaccrualcomponentsofDNOA(likereceivablesandpayables),cashinvestmentisreallyanaccrualthatallocates
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