Management Inducements for Cash Flows Classification Shifting in Egyptian Companies: Analysis of Core Operating Cash Flows Inflation Strategies—An applied study | ||
| مجلة البحوث المحاسبية | ||
| Volume 11, Issue 2, June 2024, Pages 1-43 PDF (745.47 K) | ||
| DOI: 10.21608/abj.2024.354066 | ||
| Authors | ||
| Marwa Hassan Mohamed Hassaan1; Wafaa Salah Mohamed Abdallah2 | ||
| 1Associate Professor of Accounting, Faculty of Commerce, Mansoura University, Mansoura, Egypt | ||
| 2Associate Professor of Accounting, Faculty of Business Administration, Economics, and Political Science, The British University in Egypt, Cairo, Egypt | ||
| Abstract | ||
| This study scrutinises the possibility of abusing the flexibility granted under Egyptian Accounting Standard No. 4: Statement of Cash Flows (EAS 4) to only non-financial companies to classify cash flows relating to interests and dividends under operating, investing, or financing activities, according to managerial discretion. The focus lies on analysing the strategies employed by management to manipulate operating cash flows by shifting cash in-flows from investing and financing activities into operating activities section, and by shifting cash out-flows from operating activities into investing and financing activities sections. This study further investigates the main factors that are likely to influence such behaviour during the period from 2017 to 2022. A combination of static panel regression models, including Pooled Ordinary Least Squares (OLS), fixed effects, and random effects models is employed. This study documents a significant diversity in cash flows classification across sectors, suggesting the existence of sector-specific factors and manipulation techniques. Furthermore, findings provide evidence that highly indebted companies are more likely to engage in cash flows shifting to artificially inflate their reported operating cash flows. Hence, leverage is a key determinant of operating versus non-operating cash flows classification choice. Findings further confirmed through robustness checks, and totally support the notions of the accounting choices theory. This study offers unique and comprehensive insights into cash flows reclassification practices in Arab markets. Findings have valuable implications for standard setters, policymakers, regulators, creditors, and investors, as management cash flows classification choice may mislead the decisions of financial statements users. Overall, these results raise the need for accounting standards-setting bodies to reassess EAS 4 (IAS 7) flexibility pros and cons, and its related impact on the quality of financial reports and their comparability. | ||
| Keywords | ||
| EAS 4; IAS 7; operating cash flows; EGX; cash flows management; classification shifting | ||
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