A Research On Cash Flow Persistence Based On Bussiness Life Cycle Theory

Enterprise accounting earnings is important information that investors usually pay attention to, while in the aspect of earnings persistence, a very important part is decomposition of earnings component and research on the persistence of decomposition project. According to sloan (1996) method, traditional decomposition divides earnings to cash flow section and accrual section two parts. At the moment, there are a lot of researches on accrual section, but few on cash flow section. Moreover, many researches both at home and abroad also point out that the contribution of cash flow to earning persistence is more than accrual. So this paper makes research mainly on the cash flow section.This article divides cash flow into operating, investment and financing three categories when doing the research, which is to analyze if there is any difference in the prediction function of decomposition project of cash flow and total cash flow in future cash flow and enterprise earnings.This article introduces theory of enterprises life cycles on the basis of this. As the life cycles of enterprises will affect cash flow of enterprises and then affect its earnings persistence, so this article makes analysis of cash flow persistence for enterprises in different life cycle stages, operating activities, investment activities and financing activities and compares the sizes of persistence of cash flow of enterprises in different stages. This article makes deep research on the earnings persistence of enterprises on the basis of life cycle theory and looks forward to provide effective assistance to investors for decision-makings.This article makes empirical research by adopting linear first-order autoregressive modelon the basis of data of listing corporations from 2008 to 2012. It divides the enterprise life cycles into 3 stages, which include growth stage, maturity stage and decline stage on the basis of judgments on three indexes of enterprise, including cash flows from operating activities, increasing rate of business income and increasing rate of capital expenditure.Research shows that the prediction ability of decomposition project of cash flow in future earnings is stronger than total cash flow. Besides, there are obvious differences in cash flow persistence in different cash flow decomposition projects, among them, operating cash flow persistence is the strongest. When the life cycle of enterprises stay at different stages, the cash flow persistence of each component will also change. For operating cash flow, investment cash flow and financing cash flow, there is no significant difference of persistence between growth stage and maturity stage, but both of them are significantly stronger than the decline stage.