收入和现金流量的定价和权责发生制的确认外文翻译.docx

1、收入和现金流量的定价和权责发生制的确认外文翻译中文3700字外 文 翻 译原文：The pricing of earnings and cash flows and an affirmation of accrual accountingThis paper examines a core idea in accounting, drummed into every beginning accounting student: accrual accounting, rather than cash accounting, is appropriate for business reportin

2、g. Accounting goes beyond a mere cash book, to report (accrual) earnings rather than cash flow as the measure of valued added. The paper investigates whether common shares are priced in the stock market according to accounting prescriptions on how earnings and cash flows affect shareholders equity.T

3、o develop an empirical specification that incorporates the prescriptions, the paper first formally lays out how earnings and cash flows relate to shareholders equity in the accounting system. With a focus on the shareholder, it makes the standard distinction in both valuation theory and accounting b

4、etween the business and the equity claim on the business. Under accrual accounting, earnings from the business add to both the book value of assets and the book value of the equity claim on those assets. This, of course, is well appreciated. Less appreciated, however, are prescriptions about cash fl

5、ow that are imbedded in accrual accounting: net cash flow from a businesscommonly referred to as free cash flowhas no effect of the book value of the equity (we show) but reduces the book value of business assets, dollar- for- dollar. Accrual accounting treats cash flow not as an addition to busines

6、s value but as a payout from the business. That payout reduces the value of business without affecting the cum-dividend value of the equity.The empirical analysis shows that the stock market prices business firms and equity claims on firms according to this prescription. We find that, on average, an

7、nual changes in both the market value of the firm and the market value of equity shares are positively related to annual earnings. However, given earnings, changes in the market value of the firm are negatively related to cash flows from the firm. Indeed, a dollar of free cash flow is, on average, a

8、ssociated with approximately a dollar less in market value of the firm, while changes in the market value of equity are unrelated to the free cash flow that business generates. Furthermore, separating out the investment portion of flow free cash flow, we find that the remaining cash flow from operat

9、ions is also associated with lower market value for the firm, dollar-for-dollar, and is unrelated to changes in equity value.The result with respect to earnings is, of course, not new; the finding of a positive correlation between earnings changes and stock returns in the Ball and Brown (1968) paper

10、 is an affirmation of accrual accounting, replicated many times. Dechow (1994) and Dechow et al. (1998), among others, affirm the importance of accruals over cash flows under a variety of conditions. Our analysis explores an additional feature of accounting: not only does accrual accounting promote

11、earnings as the primary valuation attribute (rather than cash flows), but actually treats cash flows as irrelevant to equity valuation. Our empirical analysis affirms.The result with respect to cash flows may be surprising, for one typically thinks of cash flow as a goodmore cash flow means higher v

12、alueand analysts often recommend stocks of companies that have positive cash flow. However, our results are not surprising when one recognizes that economic theory also affirms the accounting: accrual accounting operates in a way that recognizes Miller and Modigliani (1961) notion of dividend displa

13、cement and the complementary notion of dividend irrelevance. Just as dividends, the distribution of cash to shareholders, reduce the equity claim but do not affect the cum-dividend value of equity, free cash flow, the corresponding distribution from the firm (to all claimants), is a dividend from th

14、e firm that reduces the value of the firm but does not affect the cum-dividend value of the firm. Because the equity claim is on both the value of the firm and the cash flow, it is unaffected by the cash flow but rather by the cum-dividend value of the firm. In short, accrual accounting honors the f

15、oundational principles of modern finance, and the stock market prices firms and equity claims according to these principles.The results in the paper seemingly conflict with previous research. In Rayburn (1986), Wilson (1987), Dechow (1994), Bowen et al. (1987), Clubb (1995), and Francis et al. (2003

16、), among others, cash flow variables in return regressions load with a positive coefficient, with and without earnings included. The difference revolves around the issue of specification. This paper develops a regression specification quite methodically (in Sect. 1) so the differences are well under

17、stood. Indeed, while the pricing of earnings and cash flows is our substantive concern, the issue of specification in capital market research is a subtext. In this respect, the paper responds to the Holthausen and Watts (2001) criticism that capital markets research in accounting has had little to c

18、ontribute to normative issues faced by standard setters. With attention to specificationwhich Holthausen and Watts argue is necessarywe are able to draw conclusions about a very basic normative issue, the use of cash accounting versus accrual accounting for business reporting. Our result in no way n

19、ullifies the results in other papers; indeed, we are able to reconcile what look like very different findings to the earlier results.The ability of earnings to explain changes in market values depends, of course, on how the earnings are measured. Indeed, one expects cash flow to be informative if ea

20、rnings are poorly measured, and the comparison of cash flow to earnings is a standard diagnostic in earnings quality analysis (see, for example, Sloan 1996; Dechow and Dichev 2002; Dechow et al. 2008). We build specifications that explicitly recognize that cash flows (and dividends) can have informa

21、tion content in response to poor earnings measurement. Nevertheless, using US GAAP earnings measures, we find that cash flows, on average, do not explain changes in stock prices. The emphasis that the findings apply on average is important, for GAAP is (presumably) designed for broad application in

22、the cross-section. The average result in no way abrogates the findings that accrual accounting may be deficient and cash flows relevant in particular contexts.1 Specification of return regressions involving earnings and cash flowsWhile documenting the relevant correlations, most prior research that

23、relates stock prices and returns to earnings, cash flows, or both does not use pre-specified models. Some exceptions are Jennings (1990), who addresses some specification issues in earnings and cash flows regressions, and Barth et al. (1999), who refer to valuation models to develop regression equat

24、ions involving earnings and cash flows. In this paper we develop a specification and then put it to the test. The specification is dictated by the accounting structure that produces earnings and cash flows numbers. We first lay out this structure (in Sect. 1.1), then specify pricing equations that i

25、ncorporate the structure (in Sect. 1.2), which we then take to the data (in Sect. 2). A general discussion of specification of returns regressions containing accounting numbers is in the Appendix.1.1Accounting relations that govern accrual accountingAccrual accounting, at least nominally, tracks the

26、 evolution of shareholders equity over discrete periods; in each period, accounting calculates a number, earnings, which update shareholders equity via the closing entry. We lay out a set of accounting operations that amount to prescriptions that govern the accounting. We start with cash flows.1.1.1

27、 Cash flow relationsThe firm (the business operations) is distinguished from the claims on the firm, as in the typical balance sheet. Correspondingly, cash flows generated by a business (free cash flow) are distinguished from those paid to claimants. The standard cash conservation equation equates t

28、he two:Free Cash Flow = d + F (1)As the analysis focuses on the pricing of common shares, the dividend to common shareholders, d, is distinguished from payments to all other claimants (such as bondholders and preferred stock holders), F. Distributions to debt issuersby the purchase of financial asse

29、ts with the cashare also an application of free cash flow, so F refers to cash payments to net debt holders (debt holders and debt issuers). Dividends, d, are net cash distributions to shareholders (dividends plus stock repurchases less stock issues).It is common to distinguish the two components of

30、 free cash flow, cash from operations (C) and cash investment (I): Free Cash Flow = C - I. The distinction between C and I is an accrual accounting issue, however, involving an allocation to periodic income statements that does not bear on net cash generated. To delineate clearly between cash and ac

31、crual accounting, our reference will be to the net cash from operations, that is, free cash flow. However, at the end of the paper we will distinguish between C and I to examine the pricing of cash from operations (C) with which previous papers have largely been concerned. So we will denote free cas

32、h flow as C - I with the reminder that this refers to the net cash flow from operations.1.1.2 Accrual accounting for the firmAccrual accounting adjusts free cash flows from operations on the left hand side of Eq. 1 to yield income from operations, as follows:OI= (C-I) + I + Operating accruals (2)The

33、 adjustments are added to net operating assets on the balance sheet:NOA= I + Operating accruals . (3)While Eq. 3 distinguishes between cash investment (like purchases of equipment) and operating accrual components of DNOA (like receivables and payables), cash investment is really an accrual that allocates cur