Management of operating cash flows before and after the scandals in the early 2000s: An examination of meeting or beating analyst cash flow forecasts

We examine whether the stock market premium assigned to meeting or beating analyst estimates of cash flows from operations (hereafter, "CFO") has changed after the publicized accounting scandals in the early 2000 s ("post-scandals period"). We also examine whether firms' CFO management behavior associated with meeting or beating analyst CFO forecasts has changed after the scandals. We find that the market reward for firms that meet or just beat analyst CFO forecasts ("small beaters") has increased in the post-scandals period, especially when the accuracy of CFO forecasts is relatively high. We also find that the extent of CFO management engaged in by small beaters has increased after the accounting scandals and that these firms appear to resort to the timing of CFO. Further, we find evi-dence that the "underpricing" of CFO is weaker in the post-scandals period that exhibits a greater extent of CFO management than before, suggesting that the reduction in the underpricing of CFO in the post-scandals period is at least partially due to CFO manage-ment. Overall, our findings suggest that firms responded to the rising importance of cash flow information after a series of accounting scandals by inflating reported CFO to a larger extent than they did before.& COPY; 2023 Elsevier Inc. All rights reserved.