FINDINGS, DISCUSSION AND ANALYSIS
? The findings, discussion and analysis should be based on the below stated objectives, research questions and hypothesis.
? Model for analysis should also be based on the below stated model i.e. as stated in the proposal written by you.
? All external quotations should be referenced appropriately.
? All citations should be in accordance to the Harvard system of referencing and should be presented alphabetically.
? Appropriate use of tables, graphs and Appendices and should be labeled properly.
? Raw data should be included in the appendix

Objective of the Study
The main purpose of this study is to empirically evaluate the predictability factor of accrual basis accounting in determining future cash flows for firms listed on Nigerian stock exchange which is among one of the growing stock markets around the globe. The study aims at evaluating a mix of industries for this study to create a large sample size and increase the generalization factor of results. The study‘s objectives include comparing how accrual basis accounting is different in predicting cash flows than cash basis accounting and how various factors affect the predictability factors. The selection of Nigerian market holds significance due to the emerging nature of Nigerian stock exchange and lack of large data available on similar market. The results from this study will then be used to evaluate previously found results and assertions and any implications for future studies will be highlighted.
Research Questions
The study intends to evaluate the role of accrual accounting in predicting cash flows for firms listed on Nigerian Stock Exchange. The main question to be answered using secondary data can be postulated as:
• How can accrual accounting data are used to predict future cash flow of Nigerian listed companies?
Apart from the primary question, following secondary questions will be answered through the study:
• Do past earnings significantly predict future cash flows of Nigerian listed companies?
• Are past cash flows significant predictors of future cash flows of Nigerian listed companies?
• Are past cash flow ratios significant predictors of future cash flows of Nigerian listed companies?
• Do past cash flows and accrual components of earnings significantly predict future cash flows of Nigerian listed companies?
• Are there different predictive powers between three prediction models, earnings, cash flows and cash flows and accrual components of earnings models?
Research Hypothesis
Based on these research questions, following research hypotheses will form the basis of this study:
Research Hypothesis 1:
Past earnings are significant predictors of future cash flows for Nigerian listed companies.
Research Hypothesis 2:
Past cash flows are significant predictors of future cash flows for Nigerian listed companies.

Theoretical Framework for Research
The theoretical framework for this study is based on two main models adopted by previous researchers: the accrual based earnings model and the cash flow model as explained in the previous literature (Efayena, 2015). The accrual based earnings model designed by Dechow, Kothari, and Watts (1998, cited in Chong, 2012) suggests that past earnings can be used to predict future cash flows while the cash flow model presented by Quirin, O’Bryan, Wilcox, and Berry (1999, cited in Chong, 2012; Efayena, 2015) suggests that past cash flows can be used to predict future cash flows as well. The equations below represent the statistical presentation of both models i.e. accrual earnings and cash flow models respectively.
CFi, t = ? + ?1 EAi, t-1 + ?t ………….. (1)
Where CF is the future cash flows (i=firm, t=year)
EA is the past earnings
? is the constant and coefficient of earnings
? is the residual error of model
Similarly, cash flow model can be presented as
CFi, t = ? + ?1 PCFi, t-1 + ?t ………….. (2)
Where CF is the future cash flows
? is the constant and coefficient of past cash flows
PCF is the past cash flows
Using both models, the study will evaluate whether accrual basis accounting is useful in predicting future cash flows for Nigerian companies or not and apart from accrual basis accounting how significant are past cash flows in predicting future cash flows.
Sample and Data Collection
In order to include large set of data, around 50 companies listed on Nigerian stock exchange are selected for this study including both financial and non-financial companies. Using the convenience sampling technique, random companies with over 10 years of existence in business are selected. From the sample of these 50 companies, random errors will be detected once data is collected and for any missing data and information under the sampling error margin of around 10%, the number of companies will be adjusted in final report. The secondary data will be collected from financial statements and Nigerian stock exchange website, the final sample size will be determined accordingly.
The data collection is done using three main financial statements of balance sheet, income statement, and cash flow statements of selected companies from time period of 2005-2014 to represent 10-year period. The main variables included in the study are Cash flow from operating activities, average total assets, and net earnings.
Data and Variable Description
Cash Flow from operations
Cash flows from operating activities are defined as “net cash increase or decrease obtained from the profit making activities of a business i.e. operating activities” (Tracy and Tracy, 2011; Beisland, 2011). The cash flow from operations is also defined as net income minus the accruals (Porter and Norton, 2014; Jemaa et al, 2015).
Past earnings
The earnings taken in this study refers to earnings from income statement that can also be termed as net income before extraordinary items. However, in this paper earnings is taken as scaled by average assets for two years as used by previous researchers (Farshadfar, Chew Ng and Brimble, 2008; Takhtaei and Karimi, 2013; Mulenga, 2015).
Table 1 below shows the definition of each variable as well as highlights previous studies that used similar variables for evaluating the future cash flows and their predictability.
Variable Variable Type Measurement Previous Studies
Past Cash Flows Independent Net Cash flows from operating activities /Average total assets Cheng and Hollie (2008); Ahmadi and Ahmadi (2012); Jemaa et al. (2015)
Future Cash Flows Dependent Net Cash flows from operating activities /Average total assets Efayena (2015); Kim and Kross (2005); Brochet, Nam and Ronen (2009)
Net Earnings Independent Profit after tax and extraordinary items/ Average total assets Efayena (2015); Jordan and Waldron (2010)

Data Analysis
The data collected from financial statements and Nigerian stock exchange is evaluated using statistical tools and equations and for this purpose both MS Excel as well as EVIEWS tools will be used. EVIEWS software is useful statistical software that is widely utilized by researchers and analysts in identifying magnitude of relationship between variables. The data collected will be analyzed using different tools of descriptive statistics, correlation matrix/ Pearson correlation, line graphs, and OLS regression analysis. Apart from analysis tools, the error detecting tools will also be used to detect any autocorrelation or heteroscedasticity in data through Durbin-Watson test and White test.
Econometric Model
In order to carry out statistical analysis, econometric models are developed using the cash flow model and accrual based model using yearly lags. The Accrual based model can be statistically represented as follows:
CFt = ? + ?1 EAt-1 + ? ………….. (a)
CFt = ? + ?1 EAt-1 + ?2 EAt-2 + ? ………….. (b)
CFt = ? + ?1 EAt-1 + ?2 EAt-2 + ?3 EAt-3 + ? ………….. (c)
Similarly for cash flow based model, following models are used:
CFt = ? + ?1 PCFt-1 + ? ………….. (d)
CFt = ? + ?1PCF t-1 + ?2 PCFt-2 + ? ………….. (e)
CFt = ? + ?1 PCFt-1 + ?2 PCFt-2 + ?3 PCFt-3 + ? …………. (f)

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