Empirical Studies in Financial Accounting

Abstract
Some valuation models use the accounting earnings and others use the cash flows as inputs to
measure the intrinsic value of stocks. The empirical evidences show that the performance of
earnings-based models is generally higher than that of non-earnings-based models. In addition,
based on empirical evidences, earnings management that is done using accruals and real activities
manipulation; shift the earnings quality, and using the managed earnings in earnings-based
valuation models lead to incorrect results. The first stage of this research that is done on 116
firms listed in Tehran Stock Exchange from 2003 to the end of 2013 compares the performance of
Residual Income Model (RIM) and discounted cash flow model (DCF). The second stage compares the
performance of mentioned models in suspected and non- suspected firms to earnings management and to
control the effects of some variables on results, the regression analyses is applied. The research
results show that, although in total sample the performance of RIM is higher than that of
discounted DCF, the performance of RIM is significantly lower than that of DCF in suspected firms.