Table 3 describes the classification choices for interest paid, interest received, and dividends received-by country and industry. Footnote 20 The number of observations differs in each panel because not all firms report each item. Footnote 21
About 3% of the sample classifies dividends received as a financing cash flow, inconsistent with guidance in IAS 7, Statement of Cash Flows, paragraph 33
Overall, about 76% of the sample firms classify interest paid in operating and 23.5% in financing. In our sample, all firms in Finland classify interest paid in the operating section. Over 95% of all Danish and Swedish firms choose to classify interest paid in operating. In Portugal, however, about 81% of our sample firms classify interest paid in financing. About 65% of the observations in Belgium, France, Germany, Spain, and the United Kingdom classify interest paid in operating. About 0.5% of the sample classifies interest paid as an investing cash flow, inconsistent with guidance in IAS 7, Statement of Cash Flows, paragraph 33 (IASB 1994).
Classification of interest received also varies as shown in Table 3, panel A. About 60, 31, and 9% classify interest received in operating, investing, and financing, respectively. Similar to the reporting of interest paid, a very high proportion of the sample firms in Denmark, Finland, and Sweden classify interest received in operating. Portugal, the United Kingdom, and Spain have the highest percentage of firms classifying interest received in investing, at 91, 61, and 52%, respectively. About 9% of the sample firms classify interest received as a financing cash flow, inconsistent with guidance in IAS 7, Statement of Cash Flows, paragraph 33 (IASB 1994).
The choice of where to classify interest paid in the statement of cash flows varies by country (Table 3, panel A)
Dividends received are primarily classified in operating and investing, at 57 and 40%, respectively, as shown in Table 3, panel A. Over 90% of observations from Austria and Sweden classify dividends received as operating. In contrast, only 23% of the Portuguese firms in our sample classify dividends received as operating, with the remaining 77% classify them as investing.
Footnote 22 Classification choices for interest paid shows less variation across industries than across countries. Across all industries, at least two-thirds of firms classify interest paid as operating. The percentage of the sample classifying interest paid in financing ranges from 13% for durable goods manufacturers to 33% for both chemicals and services and 34% in other.
For interest received, 71% of durable goods manufacturers and 70% of firms in textiles, printing, and publishing classify interest received in operating. Firms in the remaining industries are less likely to classify interest received in operating, with the lowest frequency for chemicals at 36%. Finally, for dividends received, 81% of firms in the extractive industries report dividends received in operating, followed by durable goods manufacturers, with 70% classifying dividends received in operating.
Table 4 presents information on common classification-choice combinations for the 1925 firm-year observations that clearly disclose classification choices for all three items. The most common classification-choice combination, selected by 42%, is classifying all items in OCF. The second most common combination is classifying interest paid in financing and both dividends received and interest received in investing. Table 4, panel B, reports classifications by section pairs. The diagonals of the section-pair classifications indicate similarities of classification choices, by item. For example, of the 1310 observations that classify interest paid as operating, 83% () also classify interest received as operating. Interest paid and interest received are classified differently by 35% () of observations, implying that net interest is not automatically a determinant of OCF reported under IFRS. For interest received and dividends received, 32% () of observations classify these two items in the different sections.