Australasian cash flow reporting regulation: value relevant?

Abstract

Purpose

This paper provides empirical support for the introduction of cash flow disclosure regulation issued by Australasian accounting bodies, AASB and NZICA (formerly NZSA), between 1987 and 1992.

Design/methodology/approach

The empirical analysis uses a long window event study format on a panel of 5,368 firm‐year observations between 1996 and 2005.

Findings

The cash flow disclosures required in the regulation are associated with significant abnormal return responses. These effects are robust to the inclusion of other factors linked to abnormal returns such as movements in profitability, size and leverage. We also find support for the proposition that the cash flow effects are conditioned on the quality of the firm, as proxied by q. The market is better and more easily informed with the information required under the revised reporting regime.

Research limitations/implications

The analysis would have been improved with better access to pre‐reform period data.

Originality/value

There is no other study on Australasian markets which looks at the value impacts of cash flow information in relation to this regulatory change. Such a study has also never been done on New Zealand companies.

Citation

Malone, C.B., Wongchoti, U. and Mitchell, A.J. (2011), "Australasian cash flow reporting regulation: value relevant?", Pacific Accounting Review, Vol. 23 No. 3, pp. 345-367. https://doi.org/10.1108/01140581111185535