Analyzing the efficiency of capital market relative to the decreas-ing and increasing information of the components of accounting earnings

Document Type : َApplied-Research Paper

Authors

1 Department of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran.

2 Department of Accounting, Masjed-Soleiman Branch, Islamic Azad University, Masjed-Soleiman, Iran

3 Department of Economic, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

10.22034/amfa.2019.1870516.1237

Abstract

This research investigates the capital market's efficiency relative to the decreasing and increasing information the components of cash and accrual of the accounting earnings. In the accrual accounting system, accounting earnings includes two components of cash and accrual. Information about decreasing and increasing values of the normal and abnormal portion of the changes in financial assets as a cash component is compared with the information on the decreasing and increasing amounts of discretionary and non-discretionary accruals. The required data was extracted from the financial statements of the listed companies in Tehran Stock Exchange during the years 2003 to 2017. In order to estimate the research models from the regression with the combined data as well as the equations system, the simultaneous equations system with the seemingly unrelated regression (SUR) approach are utilized and then some experiments are implemented to evaluate the research hypotheses by using Mishkin’s test. The results reveal that the capital market is inefficient in terms of the increasing information (positive portion) of accrual and discretionary accruals and information on abnormal changes in financial assets (increasing and decreasing), but rather on the information (negative) of discretionary and non-discretionary accruals and abnormal changes in the financial assets (increasing and decreasing).

Keywords

Main Subjects


[1] Aflatoni, A., Ghadimi, A., Capital Market Performance, Earnings Quality, Earnings Management, Publication of Sinai Learners, 2013, Hamedan. (in Persian).
[2] Aflatoni, A., Low stockholders' ability to process information and its role in incorrect pricing of stock companies, Financial knowledge of securities analysis, 2016, 30, P.55-66. (in Persian).
[3] Alizadeh, H., Aflatoni, A., Reviewing the Efficiency of Tehran Stock Exchange in Reflecting Information on Accounting Earnings and its Share in Stock Prices, Accounting and Audit Research, 2018, 39, P.133-148. (in Persian).
[4] Anderson, K., Woodhouse, K., Ramsay, A., and Faff, R., Testing for asymmetric effects in the accrual anomaly using piecewise linear regressions, Pacific Accounting Review, 2008, 21(1), P.5-25.
Doi:10.1108/01140580910956830
 
[5] Ang W, R., and Weber, O., The market efficiency of socially responsible investment in Korea, Journal of Global Responsibility, 2018, P.96-110.  Doi:10.1108/JGR-11-2016-0030.
 
[6] Bates, T., W, Kahle., K.M., Stulz R.M. Why do U.S. firms hold so much more cash than they used to? Journal of Finance, 2009, 64(5), P. 1985-2021.  Doi:10.1111/j.1540-6261.2009.01492.x.
 
[7] Chen, J.Z., Shane, P.B., Changes in Cash: Persistence and Pricing Implications, Journal of Accounting Research, 2014,  52(3), P.599-634.  Doi:10.1111/1475-679X.12050.
 
[8] Dechow, P.M., Kothari, S.P., Watts, R.L., The relation between earnings and cash flows, Journal of Accounting and Economics, 1998, 25(2), P.133-168. Doi:10.1016/S0165-4101(98)00020-2.
 
[9] Dechow, P.M., Richardson, S.A., Sloan, R.G., The persistence and pricing of the cash component of earnings. Journal of Accounting Research, 2008, 46, P.537-566.  Doi:10.1111/j.1475-679X.2008.00283.x.
 
[10] Desai, H., Rajgopal, S., and Venkatachalam, M., Value-glamour and accruals mispricing:   one   anomaly   or   two?   The Accounting Review, 2004, 79, P. 355- 385 . Doi: stable/3203248.
 
[11] Farman Ara. V., The Study of the Relationship Between Asymmetric Information and Management Opportunities by Financing and Investing in Companies Accepted in Tehran Stock Exchange, Financial Economics, 2018, 12 (43), P. 209-232.
 
[12] Foroughi, D., Amiri, E., Ebrahimian, A., Sustainability of profits and its components at the industry and company level, Journal of Accounting Progress of Shiraz University, 2017, 9(2), P.63-92.
 
[13] Ghalibaf Asl, H., Nateghi, M., Low risk assessment in Tehran Stock Exchange, Financial Research, 2008, 9 (1), P.47-66.
 
[14] Hand, J., A test of the extended functional fixation hypothesis, The Accounting Review, 1990, 65, October, P.740-763.  Doi: stable/247648.
 
[15] Hasas Yegane, Y., Barry, S., The role of dispersion of returns in the interpretation of accrual accounting abnormalities, Financial knowledge of securities analysis, 2016, 33, P.33-49.
 
[16] Homayunnia, M., Malekian, E., Investigating the relationship between institutional investors and the incorrect pricing of accruals in affiliated companies in the securities market, Accounting Research, 2005, 31, P.22-53.
 
[17] Hui, K., Nelson, K., and Yeung, P., On the persistence and pricing of industry-wide and firm-specific earnings, cash flows, and accruals, Journal of Accounting and Economics, 2016, 61(1), P.185-202. Doi:10.1016/j.jacceco.2015.06.003.
 
[18] Islami Bidgoli, Gh., Sadeghi Baatani, A., Presentation of filter rules and comparing the efficiency of filter rules with the purchase and maintenance method, Financial research, 2004, 6(18), P. 3-26.
 
[19] Khan, W., and Vieito, J.P., Stock exchange mergers and weak form of market efficiency: the case of Euronext Lisbon, International Review of Economics and Finance, 2012, 22(1), P.173-189.  Doi:10.1016/j.iref.2011.09.005
 
[20] Kothari, S.P., Leone, A.J., and Wasley, C.E., Performance matched discretionary accruals measures,
 Journal of Accounting and Economics, 2005, 39(1), P.163-197, Doi:10.1016/j.jacceco.2004.11.002.
 
[21]Kraft, A.G., Leone, A.J., and Wasley, C.E., Regression Based Tests of the Market Pricing of Accounting Numbers: The Mishkin Test and Ordinary Least Squares, Journal of Accounting Research, 2007, 45, P.1081-1114,  Doi:10.1111/j.1475-679X.2007.00261.x
 
[22] Mishkin, F., A Rational Expectations Approach to Macro econometrics: Testing Policy Effectiveness and Efficient Markets Models, 1983, Chicago, IL: University of Chicago Press.
 
[23] Mithu, R. D., and Lim L., Accrual reliability, earnings persistence, and stock prices: revisited, American Journal of Business, 2015, 30(1), P. 22 – 48,  Doi:10.1016/j.jacceco.2005.04.005.
 
[24] Mousavi Shiri, M., Fadaee, M., Maftoonian M., Babaei Kelarijani, M., Investigating the Compensation of the Cash Compensation to the Componential Commitment of Earnings and Identifying Excessively Weighted Shares of the Companies Accepted in the Tehran Stock Exchange, Financial Economics, 2016, 10(37), P.71-91.
 
[25] Namazi, M,Shushtarian, Z., Review of weaknesses in stock market performance trials, Financial Research Magazine, 1996, 3(11-12), P. 62-96.
 
[26] Nurunnabi, M., Testing weak-form efficiency of emerging economies: a critical review of literature, Journal of Business Economics and Management, 2012, 13(1), P.167-188, Doi.org/10.3846/16111699.2011.620140
 
[27] Segot, T., and Lucey, B.M,, Efficiency in Middle East markets, European Journal of Economics, 2005, 29, P. 52-71.
 
[28] Sloan R., Do stock prices fully reflect information in accruals and cash flows about future earnings, Accounting Review, 1996, 71(3), P. 289-315, Doi: stable/248290
 
[29] Stakic, N., Jovancai, A., and Kapor, P., The efficiency of the stock market in serbia, Journal of Policy Modeling, 2016, 38(1), P.156-165, Doi:10.1016/j.jpolmod.2015.12.001.
 
[30] Teoh, S.H.  and Wong, T., Why new issue and high-accrual firms underperform:  The role of analyst’s credulity, The Review of Financial Studies, 2002, 15, P. 869-900.
 
[31] Vadiee, M., Azimi Far, F., High value-at-home equity and its relation to accruals, Accounting Advances, 2012, 2, P. 179-203.Doi. 10.22099/jaa.2012.1664.
 
[32] Wolk, H., and Dodd, J., Accounting Theory: A Conceptual and Institutional Approach, South-western College Pub, 2004, 6th Edition.
 
[33] Wu, X., Tian, G., Li, Y., Zhou, Q., On the pricing of the persistence of earnings components in China, Pacific-Basin Finance Journal, 2019, 53, P.112-132. Doi: 10.1016/j.pacfin.2018.10.017.
 
[34] Xie, H., The mispricing of abnormal accruals, Accounting Review, 2001, 76(3), P.357–373.  Doi:10.2308/accr.2001.76.3.357.
Volume 7, Issue 1
January 2022
Pages 199-216
  • Receive Date: 04 June 2019
  • Revise Date: 24 September 2019
  • Accept Date: 30 September 2019
  • First Publish Date: 01 January 2022