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The examination of the persistence and pricing of earnings, accruals and operating cash flows in companies

    Authors

    1 Associate Prof, Faculty of Management and Accounting, Islamic Azad University, Qazvin, Iran.

    2 MSc. of Accounting, KAR Higher Education Institute, Department of Management and Accounting, Qazvin, Iran.

,

Document Type : Research Paper

Abstract

Purpose: Previous research has shown that the accruals component of the earnings is less persistence than its cash component and the less persistence has been attributed to the more subjectivity components of earnings accruals. Accounting earnings is one of the most important figures that investors use in stock pricing analyses. However, the use of accounting earnings information, without attention to the way it builds and incorporates its components, may have undesirable consequences in the future. Therefore, the purpose of this study is to investigate the persistence and pricing of earnings, accruals and operating cash flows in companies admitted to the Tehran Stock Exchange.
Methodology: In order to achieve the research purpose, the data of 106 companies listed in the Tehran Stock Exchange from 2006 to 2016 were examined. To test the research hypotheses, the regression approach with combined data, as well as nonlinear least squares regression analysis in the form of simultaneous equations system and also Mishkin (1983) test have been used.
Findings: The results obtained show that operating earnings are persistence and that future earnings can be predicted based on current earnings trends. Also, the results showed that the persistence of the cash component of the earnings was greater than the accrual component. However, from a market perspective, investors exhibit greater reliance on accruals compared to the cash component of the earnings. Finally, there is a significant difference between the persistence of earnings and the components of the earnings estimated by the investors and the true persistence of the earnings and earnings components.
Conclusion: From the users' point of views, earnings and their components are overpriced and considered in predictions. This could indicate that the market is not adequately aware of the persistence of earnings and the components of current earnings in future profitability.
Knowledge acquisition: Today, accounting information systems play a very important role in the workflow of organizations. They have a pivotal role in the economic environment of the countries. Any type of research on how accounting information influences the broad range of decision-makers in companies helps to better understand the role of this information and the need for more and better disclosure of it. The findings of this study emphasize the importance of accurate analysis of the persistence and pricing of earnings, accruals, and operating cash flows when assessing the financial performance of companies.
 

Keywords

References
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Financial Accounting Knowledge
Volume 6, Issue 1 - Serial Number 20
June 2019
Pages 187-210
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