Journal Articles

The Effects of Financial Statement Information Proximity and Feedback on Cash Flow Forecasts

2010, Contemporary Accounting Research

F. Hodge, Patrick E. Hopkins, David Wood


The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), in their joint Financial Statement Presentation project, are reconsidering the basic format of financial statements. The Boards’ preliminary discussions related to this joint project indicate that they intend to modify the required financial statements to increase the proximity of performance-related information for each reported period. We provide evidence related to this potential change by investigating the effects of financial-statement information proximity on investors’ ability to learn the forecast-relevant time-series properties of reported cash flows and accruals. We also examine the role feedback plays in this relationship. Our experimental results suggest that nonprofessional investors are able to more quickly learn the relation between current period cash flows and accruals and future cash flow realizations when financial statement information is presented in a single statement rather than separated into two statements. In addition, we find that nonprofessional investors exhibit lower levels of absolute forecast errors and less forecast dispersion when financial statement information is unified into a single statement. Finally, we provide evidence that nonprofessional investors who receive extensive outcome feedback on a single page initially learn more quickly and later, after learning has leveled off, accurately forecast more consistently than do investors who receive extensive or limited feedback spread across two pages. Overall, our results provide evidence on the effectiveness of alternate financial statement presentation formats and the potential usefulness of receiving more extensive feedback.


Hodge, F., P. E. Hopkins, and D. Wood (2010), “The Effects of Financial Statement Information Proximity and Feedback on Cash Flow Forecasts,” Contemporary Accounting Research, Vol. 27, No. 1, Spring, pp. 101-133.

Kelley School of Business

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