Empirical Studies in Financial Accounting

Abstract Based on prior research conducted in different countries, the quality of information provided by the accounting system could affect the stock liquidity risk. In general terms, higher quality of information causes lower liquidity risk. This paper clarifies the relationship between earnings quality and stock liquidity risk.   Selected earnings quality criteria are including relevance, reliability, persistency and smoothness of accounting earnings. Period of six years from the beginning of 1383 (2004) till the end of 1388 (2009) is applied and the sample includes 62 companies among listed companies in Tehran Stock Exchange. Multivariate regressions for statistical analysis coupled with eight control variables (size, ratio of book to market value, the institutional investors' ownership percentage, stock returns, stock volatility and triple risk coefficients Fama - French model) is used in the models. Findings has shown that there  is  significant  relationship  between  relevance,  reliability  and smoothness of reported accounting earnings with stock liquidity risk, and higher quality of reported earnings causes lower liquidity risk. Therefore, it can be argued that the quality of disclosed accounting information has a role in the reduction of stock liquidity risk.

Abstract Fama and French (1992) observe that book-to-price (B/P) ratios are positively correlated with subsequent stock returns, a relation that has come to be   known as the book-to-price effect and Penman, Richardson, and Tuna (2007) explains that The B/P ratio can be decomposed into an enterprise book-to-price   (that pertains to operations and potentially reflects operating risk) and a leverage component (that reflects financing risk). Also, this paper is decomposed the B/P ratio into operating (NOA/PNOA) and leverage (ND/P) components and examined the components of book-to-price effect in stock returns with using annual cross-sectional that explains both the components effect. The final sample used in this analysis consists of 1,411 firm-years (225 companies) for the years 1998-2007. The empirical analysis shows that the enterprise book-to-price ratio is positively (not significantly) related to subsequent stock returns but, the leverage component of B/P is negatively associated with future stock returns (excluding firm-year observations with NOA/PNOA ≥1). Further, investigation shows that the beta is positively related to subsequent stock returns but, the size is negatively associated with future stock returns that both higher than leverage component of B/P.

Abstract This paper investigates earnings quality’s trend in Tehran stock exchange listed companies over the period 1380-1387 using a sample of 64 companies in 4 industries. In this paper, earnings quality was measured across 4 dimensions: accruals quality, earnings persistence, earnings predictability and smoothness. The results provided no evidence of decline in earnings quality over the sample period. Further statistical   analysis   showed   that   the   earnings   quality   data   are descriptive of a random walk model. Only regressing the measures of earnings   quality   on   time   provided   some   evidence   of   slight improvement in accruals quality in one of the industries.

Abstract As a functional and economical procedure, the change of firm ownership into generalization, leads to a growth in firm fund and as a result, an Expansion in its commercial operation. The need for great funds in commercial units and the formation of corporation as a result, leaded to separation of ownership from manager firms, and so to a conflict among the managers and the owners. In recent years, corporate governance-including a network of connections among stockholders, managers, accountants, and other beneficiaries- has been posed as a decreasing factor of the great   discrepancy among stockholders and also the segregation of ownership from commercial unit control. One of the most important factors which contribute to the control of management relationship is the board of director and its composition. As a result, it is of crucial importance to survey factors related to board composition and its effect on the firm operation. The  locative  domain  of  this  survey  is  the  collection  of  listed Companies in Tehran Stock Exchange and its temporal domain lies between year1382 till 1386. On the basis of this, the chosen samples include 130 firms. Considered questions in this research have been posed as six hypotheses.  The result of hypothesis testing shows that corporate governance variables including the number of members of board, the number of its non-executive members and the number of major shareholders  have no effect on the return on equity (ROE), but on the other hand, this variables affect Tobin’s. The results show that the number of board members has a negative and at the same time negligible effect on Tobin’s, but the nonexecutive members of board and the number of majority shareholders  have positive and also insignificant effect on Tobin’s.

Abstract Earnings quality is discussed by multiple dimensions. The purpose of this paper is to study the relationship between institutional investors and earnings quality using the Financial Accounting Standards Board's conceptual framework (including, Predictive value or feedback value, Neutrality, Timeliness, Representational faithfulness) as a basis. A sample of 80 listed companies in Tehran Stock Exchange (TSE) for the period of 1384-1387 has been selected. Hypotheses have been tested using ordinary least square (OLS) with pooled data. The results show that, institutional investors have a positive relationship and significantly with predictive value or feedback value and representational faithfulness. Also, institutional investors have a positive relationship and significantly with timeliness. Finally, institutional investors have not relationship with the absolute value of abnormal accruals (ABNAC).

Abstract One of the most important fields of management decision making that has important effect on the wealth of stockholders is financing methods of the firm. Companies need financial resources for their current operation & future growth. For financing, companies usually face some limitations; therefore company should use its current funds in a way that creates value for both investors & company. This research intends to investigate whether companies financing methods have an impact on their future returns or not. We examined 111 firms over the period 1381-1385 selected from Tehran stock exchange. This research is an empirical study, which investigates the relation between accounting and financial variables by using regression method & Pearson’s correlation coefficient. The methodology of this research is post event study. Results indicate that there is reverse relation between cash flows from financing activities (cash flows form borrowing) and future stock return. We also find that there is no significant relation between cash flows from issuing bonds and the future stock return. Overall, the results show that companies were not successful in generating return for their stockholders by using different financing methods.  

Abstract      In this study, related properties of accounting earnings as earnings volatility and earnings persistence have been studied. Theory in this study, poor matching as “noise” in the economic relation between revenues and expenses is introduced. As a result, poor matching increases the volatility of earnings and decreases the persistence of earnings. Test had been accepted from the 113 companies in Tehran Stock Exchange during the recent eight years the indicated results consistent with the existing theory. Noise in the economic relation between revenues to expenses (poor matching) and earnings volatility during recent years is decreased and earnings persistence is increased.