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This research investigates the influence of cash flow from operating and investing activities to conservative accounting practices. Cash flow from operating activities shows the performance of a firms and its earnings quality. Higher operating cash flow indicates better performance, and it is expected to produce better earnings in the future. Better earnings would be a positive signal for investor as a basic to predict the firm’s prospect. Investing activities will push or lowering operating assets. For firms that implementing the conservative accounting practices, changes in investment will influence the earnings’ quality. When the investment goes up, the conservative practices will cause lower reported earnings. The hypothesis for this research is that there is a positive relation between operating and investing cash flow to accounting conservatism practices about whether it uses market value or accrual measurement. The result of the first test using market value accounting conservatism as a proxy has shown a positive relation between operating and investing activities cash flow to accounting conservatism practices, but investing cash flow does not have a significant effect to accounting conservatism practices. The result from the second test, using accrual measurement accounting conservatism has shown a significant positive relation for both operating and investing cash flow to accounting conservatism practices. A positive relation between operating and investing cash flow to accounting conservatism practices indicates that accounting conservatism is one of the tools that can be used to measure firm’s financial performance and as an investment decision making tool for investor. Nevertheless those effects highly depend on the accounting conservatism proxy measurement used.

The influence of operating cash flow and investment cash flow to the accounting conservatism measurement