| Summary: | 碩士 === 輔仁大學 === 會計學系碩士班 === 95 === I examine in this study the role of accounting estimates embedded in accruals for earnings quality, namely, the ability of accounting earnings to predict future cash flows and earnings. Our examination is based on two sets of tests: (1) Out-of-sample predictions of future cash flows and earnings; (2) Portfolio tests, where portfolios are constructed from predicted cash flows and earnings based on current cash flows and components of accruals. It finds that accounting accruals and the estimates they embeded do improve the predictive ability of current earnings to predict future cash flows and earnings, both in statistical and economic significance.
I also examine the associations between the predictive ability of accounting accruals and firm characteristics, including the operating environment and corporate governance structure. It shows that the forecast errors of accounting accruals in predicting future cash flows and earnings get larger as operating cycle gets longer, the cash flows are more volatile,the magnitude of accruals are greater, the firm size is smaller, finally the corporate governance is weaker.
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