Intangible Investments, Scaling, and the Trend in the Accrual–Cash Flow Association

Jeremiah Green, Henock Louis, Jalal Sani

Research output: Contribution to journalArticlepeer-review


We provide evidence that the documented weakening of the accrual–cash flow association results not from a loss of accrual accounting usefulness per se, but from the deviation from accrual accounting as it relates to intangible investments. More specifically, the weakening of the negative association is driven by the combined effects of (1) increasing intangible investments, (2) the practice of expensing rather than capitalizing intangible investments, and (3) scaling accruals and cash flows by book value of assets, which are understated for intangible-intensive firms. Treating intangible expenditures as capitalized investments and scaling accruals and cash flows by market value of equity, which reflects the value of intangible investments, (1) substantially strengthens the negative association between accruals and cash flows and (2) practically eliminates the apparent weakening trend in the association.

Original languageEnglish (US)
Pages (from-to)1551-1582
Number of pages32
JournalJournal of Accounting Research
Issue number4
StatePublished - Sep 2022


  • accrual accounting
  • accrual quality
  • accruals
  • capitalization
  • cash flows
  • earnings quality
  • intangible capital
  • intangible investments
  • scaling by book value of assets

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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