The purpose of this study is to investigate the effect of earnings stability on operating cash flows with emphasis on financial constraints. Evidence suggests that earnings stability has a positive and significant effect on operating cash flows. Financial constraints have a negative and significant effect on operating cash flows, and financial constraints do not have a significant interactive effect on the relationship between profit stability and operating cash flows. To measure operating cash flow, the cash flow from operating activity obtained through the cash flow statement is obtained by dividing the company’s total assets. From 2012 to 2016 that a total of 121 companies active in various industries have formed the research sample. The present research method is descriptive correlational in terms of applied purpose and post-event in terms of the data collection method. A multivariate regression method has been used to test the research hypotheses. The independent variable in this study is profit stability, and the dependent variable is operating cash flow and financial constraint as a moderating variable. The result is also supported by stakeholder theory. In general, the study adds to the literature by emphasizing the importance of earnings stability in shaping operating cash flow and its financial constraints.

1. Alipour, M., Barandagh, M. I., & Nazari, N. (2014). An analysis of the earnings quality of Iranian public and private firms. Strategic Change, 23(1-2), 31–46. doi:https://doi.org/10.1002/jsc.1958
2. Allen, E. J., Larson, C. R., & Sloan, R. G. (2013). Accrual reversals, earnings and stock returns. Journal of accounting and economics, 56(1), 113–129. doi:https://doi.org/10.1016/j.jacceco.2013.05.002
3. Almeida, H., Campello, M., & Weisbach, M. S. (2004). The cash flow sensitivity of cash. The Journal of Finance, 59(4), 1777–1804. doi:https://doi.org/10.1111/j.1540-6261.2004.00679.x
4. Ashley, A. S., & Yang, S. S. (2004). Executive compensation and earnings persistence. Journal of Business Ethics, 50(4), 369–382. doi:https://doi.org/10.1023/b:busi.0000025031.81884.ed
5. Atiase, R. K., Li, H., Supattarakul, S., & Tse, S. (2005). Market reaction to multiple contemporaneous earnings signals: Earnings announcements and future earnings guidance. Review of Accounting Studies, 10(4), 497–525. doi:https://doi.org/10.1007/s11142-005-4211-8
6. Bahri, C., E, M. S., & Poniwati, M. (2017). The influence of undervaluation, free cash flow, leverage and dispersion of ownerships toward company’s stock repurchase (An empirical study of Indonesia stock exchange public listed companies). Journal of Administrative and Business Studies, 3(5), 235-247. doi:https://doi.org/10.20474/jabs-3.5.3
7. Bao, Y., Gao, Z., Xu, M., & Yang, H. (2014). Tradable credit scheme for mobility management considering travelers’ loss aversion. Transportation Research Part E: Logistics and Transportation Review, 68, 138–154. doi:https://doi.org/10.1016/j.tre.2014.05.007
8. Benlemlih, M., & Bitar, M. (2018). Corporate social responsibility and investment efficiency. Journal of Business Ethics, 148(3), 647–671.
9. Blaylock, B., Shevlin, T., & Wilson, R. J. (2012). Tax avoidance, large positive temporary book-tax differences, and earnings persistence. The Accounting Review, 87(1), 91–120. doi:https://doi.org/10.2139/ssrn.1524298
10. Chou, D.-W., Gombola, M., & Liu, F.-Y. (2009). Long-run underperformance following private equity placements: The role of growth opportunities. The Quarterly Review of Economics and Finance, 49(3), 1113–1128. doi:https://doi.org/10.1016/j.qref.2008.11.003
11. Cleary, S. (2006). International corporate investment and the relationships between financial constraint measures. Journal of Banking & Finance, 30(5), 1559–1580. doi:https://doi.org/10.1016/j.jbankfin.2005.03.023
12. da Cruz, A. F., Kimura, H., & Sobreiro, V. A. (2019). What do we know about corporate cash holdings? A systematic analysis. Journal of Corporate Accounting & Finance, 30(1), 77–143. doi:https://doi.org/10.1002/jcaf.22368
13. Dudycz, T., & Pra ́zników, J. (2020). Does the mark-to-model fair value measure make assets impairment noisy?: A literature review. Sustainability, 12(4), 1504. doi:https://doi.org/10.3390/su12041504
14. Ebrahimi, S. K., Bahraminasab, A., & Mamashli, R. (2017). The effect of financial crisis on earnings quality. Journal of Accounting and Auditing Review, 23(4), 415-434.
15. Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417.
16. Hassanzadeh, R. B., Nahandi, Y. B., & Negahban, L. (2014). The impact of financial constraints and agency costs of investment efficiency. Journal of Financial Accounting Research, 6(1), 7-18.
17. Hayek, F. A. (1945). The use of knowledge in society. The American Economic Review, 35(4), 519–530.
18. Healy, P., Serafeim, G., Srinivasan, S., & Yu, G. (2014). Market competition, earnings management, and persistence in accounting profitability around the world. Review of Accounting Studies, 19(4), 1281–1308. doi:https://doi.org/10.1007/s11142-014-9277-8
19. Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 112(1), 169–215. doi:https://doi.org/10.1162/003355397555163
20. Khajavi, S. h., Valipour, H., & Askari, S. (2010). Investigating the effect of conservatism on the earnings persistence of the companies listed in Tehran stock exchange. Accounting and Auditing Research, 3, 60-69.
21. Kormendi, R., & Lipe, R. (1987). Earnings innovations, earnings persistence, and stock returns. Journal of Business, 60(3), 323–345.
22. McGuire, S. T., Neuman, S. S., & Omer, T. C. (2012). Sustainable tax strategies and earnings persistence. Retrieved from http://ssrn.com/abstract=1950378
23. McGuire, S. T., Neuman, S. S., & Omer, T. C. (2013). Sustainable tax strategies and earnings persistence. Retrieved from https://bit.ly/36GrdkY
24. Meshki, M., & Nourdideh, L. (2012). The effect of earnings management on the earnings persistence of companies listed in Tehran stock exchange. Journal of Financial Accounting Research, 6(11), 650-666.
25. Modares, A., & Abbaszadeh, M. R. (2008). Analytical study of the effect of the ability to predict accrual components and cash flows on the quality of projected earnings. Knowledge and Development, 60(55), 550-593.
26. Payne, J., & Thomas, W. (2008). The incremental effect on stock returns of achieving earnings thresholds (Working paper). University of Oklahoma, Oklahoma, OKLA.
27. Peek, E., Cuijpers, R., & Buijink, W. (2010). Creditors’ and shareholders’ reporting demands in public versus private firms: Evidence from Europe. Contemporary Accounting Research, 27(1), 49–91. doi:https://doi.org/10.1111/j.1911-3846.2010.01001.x
28. Rees, L., & Thomas, W. (2010). The stock price effects of changes in dispersion of investor beliefs during earnings announcements. Review of Accounting Studies, 15(1), 1–31. doi:https://doi.org/10.2139/ssrn.1098896
29. Saghafi, A., & Kordestani, G. (2004). Review and description of the relationship between earnings quality and market reaction to changes in cash earnings. Reviews of Accounting and Auditing, 72, 37-51.
30. Salehi, M., Bayaz, M. L. D., Mohammadi, S., Adibian, M. S., & Fahimifard, S. H. (2020). Auditors’ response to readability of financial statement notes. Asian Review of Accounting, 28, 463-480. doi:https://doi.org/10.1108/ARA-03-2019-0066
31. Shivakumar, L. (2010). Discussion of aggregate market reaction to earnings announcements. Journal of Accounting Research, 48(2), 335–342. doi:https://doi.org/10.1111/j.1475-679X.2010.00369.x
32. Soukhakian, I., & Khodakarami, M. (2019). Working capital management, firm performance and macroeconomic factors: Evidence from Iran. Cogent Business & Management, 6(1), 1-24. doi:https://doi.org/10.1080/23311975.2019.1684227
33. Zunairoh, & Fatkhurrohman. (2019). Liquidity, leverage, and cash holding: Evidence from Indonesia listed real estate firms. Journal of Administrative and Business Studies, 5(2), 79-87. doi:https://doi.org/10.20474/jabs-5.2.2

Ilkhechi, O. H., & Khatibi, S. A. (2020). The impact of earnings persistence on the operating cash flows with emphasis on financial constraints. International Journal of Business and Administrative Studies, 6(5), 265-274. doi: https://dx.doi.org/10.20469/ijbas.6.10004-5