Earnings quality measures and excess returns A case study of Tehran Stock Exchange.docVIP

Management Science Letters 3 (2013) 1133–1138 Contents lists available at GrowingScience Management Science Letters homepage: www.GrowingS/msl Earnings quality measures and excess returns: A case study of Tehran Stock Exchange Hassan Hemmati and Seyed Ali Sayadib* a a Assist. Prof. Faculty Member, Department of Accounting, Raja University,Qazvin, Iran b M.Sc. Student, Department of Accounting, Kashan Branch, Islamic Azad University (IAU), Kashan, Iran C H R O N I C L E A B S T R A C T Article history: This paper presents an empirical investigation to study the relationship between earning quality Received December 1, 2012 Received in revised format 2 March 2013 Accepted 10 March 2013 Available online March 11 2013 Keywords: Earning quality Excess return Tehran Stock Exchange measure and excess returns on selected firms trading on Tehran Stock Exchange. The purpose of this study is to find the relative advantage of income figures reported in formal financial statements. The study uses hedge return, six accounting ratios and three market ratios and performs the study over the period of 2001-2011 using 56 firms whose shares were traded on Tehran Stock Exchange. The proposed study uses regression analysis as well as structural equation modeling. The results of this study indicate that market based figures are more influencing than accounting based ratios on hedge return. In other words, hedge return for persistency index was more predictable than smoothness and abnormal accruals. However, on the contrary to what we expected, hedge return for accruals was not more than other accounting based figures. ? 2013 Growing Science Ltd. All rights reserved. 1. Introduction Earning quality plays an important role on making investment decisions and there are many studies to measure the effect of different accounting or market based factors