Investigating the validity of free cash flow and its practical application in predicting financial crises based on international accounting standards :Evidence from the Iranian capital market.

Document Type : Original Article

Authors
ayatollah tamrinia 1
Reza Nazari 2
mahdi moradzade fard 3
1 Ph.D. Student in Accounting ،Karaj Branch، Islamic Azad University ،Karaj،Iran
2 Assistant Professor،Department of Accounting ،Karaj Branch، Islamic Azad University ،Karaj،Iran.
3 Associate Professor،Department of Accounting ،Karaj Branch، Islamic Azad University ،Karaj،Iran.
Abstract
Abstract:
The prediction of financial crises is widely discussed due to its importance in studies and articles in the field of accounting. The purpose of this study is to provide a model based on free and operational cash flows to predict financial crises in the Tehran Stock Exchange, since free cash flows are the main and influential factor in the model, so according to current theory Jensen's has first tested the validity of the theory in order to examine its validity in the Iranian capital market. Then, based on the financial ratios based on free and operating cash flows, the final research model is presented. The research data were obtained using samples including 1560 observations from 260 companies from 2008 to 2017. These data are calculated according to international accounting standards. In this study, regression of the combined panel was used to examine the validity of free cash flows and Logit regression was used to predict financial crises. The research findings show that the assumptions of free cash flows in the Iranian capital market have a high validity, so Jensen's theory has a practical application in Iran. In addition, the final research model identifies companies' financial crises in the Iranian capital market in a proper manner and has a higher accuracy compared to the current Altman model. Based on the results of this study, it can be said that in the Iranian capital market, models based on free cash flows have more explanatory power in relation to predicting financial crises.
Keywords
Keywords: Cash flow
financial crises
international accounting standards
logit regression
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