The Impact of Earnings Persistence on the Operating Cash Flows with Emphasis on Financial Constraints

Abstract

The purpose of this study is to investigate the effect of earnings stability on operating cash flows with emphasis on financial constraints. Evidence suggests that earnings stability has a positive and significant effect on operating cash flows, and financial constraints have a negative and significant effect on operating cash flows and also financial constraints do not have a significant interactive effect on the relationship between profit stability and operating cash flows. To measure operating cash flow, the cash flow from operating activity obtained through the cash flow statement is obtained by dividing the total assets of the company. The research is from 2012 to 2016 that a total of 121 companies active in various industries have formed the research sample. The method of the present research is descriptive-correlational in terms of applied purpose and post-event in terms of data collection method. Multivariate regression method has been used to test the research hypotheses. The independent variable in this study is profit stability and the dependent variable is operating cash flow and financial constraint as a moderating variable. The result is also supported by stakeholder theory. In general, the research findings show the important and prominent role of earnings stability in shaping the operating cash flow and its financial constraints.