The Effects of Accruals and Cash Flow Anomalies on Net Profit and Abnormal Stock Returns in Accepted Companies in Tehran Securities Exchange
Subject Areas : Financial Mathematics
Saeid
Barati
1
(Department of Management, Arak Branch, Islamic Azad University, Arak, Iran)
Hossein
Karbasiyazdi
2
(Department of Management, South Tehran Branch, Islamic Azad University, Tehran, Iran.)
Keywords: net profit, Abnormal stock return, Accruals anomalies,
Abstract :
Reliability and efficacy of accruals and cash flows which are among the most important factors affecting dividend deviation have always been in question and subject to anomalies. The presence of these anomalies in accruals and cash flows and its effect on future returns and the consequences that they can have in country’s investments are the main motives to choose this issue for the current study. The statistical population includes all the accepted companies in Tehran Securities Exchange in the time domain of 2005 to 2012 that were studied after the systematic elimination of 153 companies from the original sample and 45 companies from the dividend continuity sample. The research is descriptive and correlational and the research assumptions are tested using statistical techniques. The results indicate that the first assumption based on rational pricing related to cash flows and total accruals in the companies in Tehran Securities Exchange is rejected in the study period; this indicates anomalies and regarding the significance of the coefficient related to the total accruals among the group of companies under study, the companies with low accruals have a higher abnormal return compared to companies with high accruals.
[1] Mohammadali, A., Sepasy, S., Kazempour, M., Study analysing the impact of the breakdown of operating cash flows and accruals on the ability to predict future cash flows and earnings, Quarterly financial management strategy, 1993, 2(4), P. 75-89.
[2] Allen, E., Larson, Ch., Richard, G.S., Accrual Reversals, Earnings and Stock Returns, available at: http://www. ssrn. com/, 2012.
[3] Ball, R., Brown, P., An empirical evaluation of accounting income numbers. Journal of Accounting Research, 1989, 6(2), P.159-178.
[4] Çelik, S., Ozkan, N., Akarım, Y. D., An investigation of the accrual anomaly in the Turkish stock market. Middle Eastern Finance and Economics, 2013, 19(5), P. 7-15.
[5] Chen, Y., Jiang, X., Book-to-Market decomposition and the accrual anomaly, Working paper, available at: http://ssrn.com, 2010.
[6] Clinch, G., Fuller, D., Govendir, B., Wells, P., The accrual anomaly: Australian evidence. Accounting & Finance, 2012, 52(2), P.377-394.
[7] Collins, D. W., & Hribar, P., Earnings-based and accrual-based market anomalies: one effect or two? Journal of Accounting and Economics, 2000, 29(1), P.101-123.
[8] Demirtas, K.O., Zirek, D., Aggregate earnings and expected stock returns in emerging markets. Emerging Markets Finance and Trade, 2012, 47(3), P.4-22.
[9] Dopuch, N., Seethamraju, C., Xu, W., The pricing of accruals forprofit and loss firms. Review of Quantitative Finance and Accounting, 2012, 34(4), P.505-516.
[10] Dastgir, M., Rastegar M.,Examine the relationship between earnings quality (earnings stability), the size of accruals and stock returns with the quality of accruals, Financial accounting research, 2005, 1(7), P. 1-20.
[11] Hirshleifier, D., Ei, H., Seiw, H.T., Accrual, cash flows, and aggregate stock returns. Journal of financial economic, 2009, 91(3), P. 389-406.
[12] Hashemi, A., Samadi, S., Sorushyara, A. Assessment of potency cash and accrual components to predict abnormal profits and the value of companies listed in the Tehran Stock Exchange, The Financial Accounting Studies, University of Isfahan, 2003, 2(1), P.93-112.
[13] Hribar, P., Collins, D. W., Errors in estimating accruals: Implicationsfor empirical research, Journal of Accounting Research, 2002, 40 (1), P.105-134.
[14] Kim, YJ., Kim, JH., Kwon, S., Lee, SJ., Percent Accruals and the Accrual Anomaly: Korean Evidence, Pacific-Basin Finance Journal, Doi: 10.1016/j. pacfin.2015.02.006, 2015.
[15] Kormendi, R., Lipe, R., Earnings innovations, earnings persistence, and stock returns, Journal of Business, 1989, 60(3), P.323-345.
[16] Li, Y., Niu, J., Zhang, R., Largay, J. A., Earnings management andthe accrual anomaly: Evidence from china, Journal of International Financial Management & Accounting, 2011, 22(3), P.205-245.
[17] Linna Sh., Zhang H., Guo, J., Analyst cash flow forecasts and pricing of accruals, Advances in Accounting, incorporating Advances in International Accounting, 2014, 30(12), P.25-37.
[18] Mishkin, F.S., A rational expectations approach to macroeconometrics: Testing policy ineffectiveness and efficient-markets models. Chicago, IL: University of Chicago Press for the National Bureau of Economic Research, 1983.
[19] Mahmoodabadi, H., Mansouri, Sh., Discretionary and involuntary accruals role in forecasting future operating cash flows, Financial accounting, Islamic Azad University of Mobarakeh, 2007, 3(10), P.1-17.
[20] Mirfakhredini, H., Moeinadin, M. And Ebrahimpur, A, Comparision of to cash flows and accruals to predict future cash flows, Accounting and Auditing Investigations, Tehran University, 2008, 16(55), P.99-116.
[21] Ozkana, N., Mustafa MK., The accrual anomaly: Evidence from Borsa Istanbul. Borsa Istanbul Review, 2015, 3(5), P.115–125.
[22] Papanastasopoulos, G.A. Earnings management andthe accrual anomaly, The North American Journal of Economics and Finance, 2010, 3(3), P.39-54.
[23] Pincus, M., Rajgopal, S., & Venkatachalam, M., The accrual anomaly: International evidence, The Accounting Review, 2007, 82(1), P.169-203.
[24] Richardson, S., Tuna, I., Wysocki, P., Accounting anomalies and fundamental analysis: A review of recent research advances, Journal of Accounting and Economics, 2010, 50(3), P.410-454.
[25] Hashemi, SA., Hamidian N., Khadijah I. Check accrual anomaly with regard to the risk of failing financial firms listed in the Tehran Stock Exchange, Financial Accounting Quarterly, 2009, 5(19), P. 1-20.
[26] Sloan, R. G., Do stock prices fully reflect informationin accruals and cash flows about future earnings? The Accounting Review, 1996, 71(3), P. 289–315.
[27] Xie, H., The mispricing of abnormal accruals. The Accounting Review, 2001, 7(6), P. 357–373.