Online from: 2005
Subject Area: Accounting and Finance
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|Title:||The reliability of mandatory cash expenditure forecasts provided by Australian mining exploration companies in quarterly cash flow reports|
|Author(s):||Gerry Gallery, (School of Accountancy, Queensland University of Technology, Brisbane, Australia), Jodie Nelson, (School of Accountancy, Queensland University of Technology, Brisbane, Australia)|
|Citation:||Gerry Gallery, Jodie Nelson, (2008) "The reliability of mandatory cash expenditure forecasts provided by Australian mining exploration companies in quarterly cash flow reports", Accounting Research Journal, Vol. 21 Iss: 3, pp.263 - 287|
|Keywords:||Australia, Cash flow, Financial forecasting, Financial reporting, Mining industry|
|Article type:||Research paper|
|DOI:||10.1108/10309610810922503 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
|Acknowledgements:||The authors thank Malik Mirza, Natalie Gallery, participants at the 2008 Pacific Basin Finance Economics Accounting Management Conference held at QUT, and an anonymous referee for their helpful comments and suggestions. The authors also thank Tahlee Fong for her expert research assistance.|
Purpose – The purpose of this study is to examine the usefulness of pre-production cash expenditure forecasts issued by Australian mining explorers in their quarterly cash-flow reports.
Design/methodology/approach – Usefulness is determined by examining compliance and the reliability of forecasts (accuracy and bias) for a sample of 1,760 forecasts issued by 481 explorers in 2005/2006. The cross-sectional variation in reliability is examined using regression analysis.
Findings – The findings reveal a high level of compliance but significant inaccuracies (median forecast error of around 50 percent of actual expenditure for exploration and evaluation expenditure and 85 percent for development expenditure), and some evidence of forecast bias. Forecast inaccuracy is more prevalent in firms that have poorer performance, greater financial slack, greater cash-flow volatility, no financial leverage, and for firms that are smaller, in the pre-development stage, and in the mineral (non-oil and gas) sub-industry.
Research limitations/implications – The analysis of forecast usefulness is confined to compliance and reliability. Further research could consider the value-relevance and predictive ability of these forecasts.
Practical implications – The findings question the usefulness of mandatory forecasting by showing that the information role of forecasts in capital markets is impaired when firms have little discretion over the forecast decision, timing and specificity.
Originality/value – This is the first study to examine mandatory cash expenditure forecasts and makes a significant contribution to the small literature on mandatory financial forecasts.
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