Flexibility in cash-flow classification under IFRS: determinants and consequences

Elizabeth A. Gordon, Elaine Henry, Bjorn N. Jorgensen*, Cheryl L. Linthicum

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

35 Citations (Scopus)


International Financial Reporting Standards (IFRS) allow managers flexibility in classifying interest paid, interest received, and dividends received within operating, investing, or financing activities within the statement of cash flows. In contrast, U.S. Generally Accepted Accounting Principles (GAAP) requires these items to be classified as operating cash flows (OCF). Studying IFRS-reporting firms in 13 European countries, we document firms’ cash-flow classification choices vary, with about 76, 60, and 57% of our sample classifying interest paid, interest received, and dividends received, respectively, in OCF. Reported OCF under IFRS tends to exceed what would be reported under U.S. GAAP. We find the main determinants of OCF-enhancing classification choices are capital market incentives and other firm characteristics, including greater likelihood of financial distress, higher leverage, and accessing equity markets more frequently. In analyzing the consequences of reporting flexibility, we find some evidence that the market’s assessment of the persistence of operating cash flows and accruals varies with the firm’s classification choices and the results of certain OCF prediction models are sensitive to classification choices.

Original languageEnglish
Peer-reviewed scientific journalReview of Accounting Studies
Issue number2
Pages (from-to)839-872
Number of pages34
Publication statusPublished - 2017
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management
  • Classification shifting
  • IFRS
  • Operating cash flows
  • Statement of cash flows


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