Relation between operating cash flow and accrual-based earnings quality

We defined earnings quality as the ability to forecast the future cash flow, stronger forecast capability means higher earnings quality. Choosing all of the A-share in Shanghai and Shenzhen Exchanges between 2001 and 2007, we made a test on the relationship between operating cash flow and accruals. The results demonstrate that the publishing of cash flow can help to increase the financial information. Expending test encouraged us to reestablish cash flow forecast model based on Chinese market, making the portfolios of variables by industry characteristic. Test results of the model revision show that the new model has a better interpretation. Interactive relations exists between operating cash flow and accrual-based earnings quality. Research suggests that using accounting information portfolios to forecast the future cash flow could help reports users judge the earnings quality.