Salience Theory and Pricing Stock of Corporates in Tehran Stock Exchange

Subject Areas : Financial Accounting

Parvaneh Khaleghi ¹ , Mohammadali Aghaei ² , Farzin Rezaei ³

1 - Department of Accounting, Qazvin Branch, Islamic Azad University, Qazvin, Iran
2 - Department of Accounting, Tarbiat Modares University, Tehran, Iran
3 - Accounting, Qazvin Branch, Islamic Azad University, Qazvin, Iran

Received: 2018-10-26 Accepted : 2019-01-03 Published : 2018-12-01

Keywords: Overreaction, Salience, Disproportionate pricing, Under risk selection,

Abstract :

How the investors react to the received information plays a crucial role in determining the return of stock exchange market. Supply and demand based upon incorrect decisions lead to the price deviation of inherent values. This paper aims to study the impact of salience phenomenon on disproportionate pricing and investor overreaction in the corporates in Tehran stock exchange. Research methodology is correlative. Statistical sample involves 120 corporates accepted by Tehran stock exchange during 2012-2016. To test the hypotheses, a regression analysis method has been selected. Research findings have indicated that there exists a promising phenomenon in Tehran stock exchange causing the investors overreaction followed by the disproportionate pricing and also, the results have shown that the impact of salience is different on strong and weak information environments.

References:

[1] Adizes, I. "Corporate  Life cycles: How and Why Corporations Grow and Die and What to Do about it." Prentice Hall, Englewood Cliffs,1989, NJ: 5-136. https://doi.org/10.1016/0024-6301(92)90356-7 

[2] Agah, M., H. Malekpoorb, et al. "Investigating the Effect of Financial Constraints and Different Levels of Agency Cost on Investment Efficiency", Advances in Mathematical Finance and Applications, Volume 2, Issue 4, autumn 2017, Page 31-47. (In Persian) DOI: 10.22034/amfa.2017.536264

[3] Anthony, J., and K. Ramesh. "Association between Accounting, Performance Measures and Stock Prices: A Test of the Life Cycle Hypothesis." Journal of Accounting & Economics 1992.Vol. 15: Pp. 203-227. https://doi.org/10.1016/0165-4101(92)90018-W

[4] Badurdeen, F., R. Aydin, et al. " A multiple lifecycle-based approach to sustainable product configuration design." Journal of Cleaner Production 2018,200: 756-769. https://doi.org/10.1016/j.jclepro.2018.07.317

[5] Boel, B. The European Productivity Agency and Transatlantic Relations 1953-1961. Museum Tusculanum Press.2003. (Vol. 4).  DOI. 10.26530/OAPEN_342371

[6] Brown, D. and B. Rowe. "The productivity premium in equity returns." University of   Wisconsin US,2007. http://dx.doi.org/10.2139/ssrn.993467

[7] Chuang, K.-S. "Corporate  life cycle, investment banks and shareholder wealth in M&As." The Quarterly Review of Economics and Finance ,2017.63: 122-134. https://doi.org/10.1016/j.qref.2016.02.008

[8] Collins, D. W., P. Hribar, et al. "Cross sectional variation in cash flow asymmetric timeliness and its effect on the earnings-based measure of conditional conservatism." University of Iowa. 2012. http://dx.doi.org/10.2139/ssrn.2120677

[9] Davis, E. P. and J. B. Madsen. "Productivity and equity market fundamentals: 80 years of evidence for 11 OECD countries." Journal of International Money and Finance 2008.27(8): 1261-1283.

https://doi.org/10.1016/j.jimonfin.2008.05.008

[10] DeAngelo, H., L. DeAngelo, et al. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory." Journal of Financial economics 2006. 81(2): 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005

[11] Dickinson, V. "Cash flow patterns as a proxy for firm life cycle." The Accounting Review 2011.86(6): 1969-1994. https://doi.org/10.2308/accr-10130

[12] Fama, E. F. and K. R. French. "Business conditions and expected returns on stocks and bonds." Journal of Financial economics ,1989,25(1): 23-49. https://doi.org/10.1016/0304-405X(89)90095-0

[13] Francis, J. R., S. Huang, et al. "Does corporate transparency contribute to efficient resource allocation?" Journal of Accounting Research, 2009,47(4): 943-989.

 https://doi.org/10.1111/j.1475-679X.2009.00340.x

[14] Hasan, M. M. "Organization capital and firm life cycle." Journal of Corporate Finance ,2018,48: 556-578. https://doi.org/10.1016/j.jcorpfin.2017.12.003

[15] Hasan, M. M., M. Hossain, et al. "Corporate life cycle and cost of equity capital." Journal of Contemporary Accounting & Economics ,2015,11(1): 46-60. https://doi.org/10.1016/j.jcae.2014.12.002

[16] Jaafar, H. and H. A. Halim . "Refining the firm life cycle classification method: A firm value perspective." Journal of Economics, Business, and Management ,2016,4(No 2 February 20). https://doi.org/10.7763/joebm.2016.v4.376

[17] Kato, T. and M. Morishima. "The productivity effects of participatory employment practices: Evidence from new Japanese panel data." Industrial Relations: A Journal of Economy and Society, 2002.41(4): 487-520.https://doi.org/10.1111/1468-232X.00262

[18] Mardani, M. and A. Sarlakb. "The Effect of Investment on the Financing of Listed Companies in Tehran Stock Exchange" Advances in Mathematical Finance and Applications, Volume 3, Issue 1, winter 2018, Page 79-89. (In Persian)  DOI: 10.22034/amfa.2018.539136

[19] Miller, D. and P. H. Friesen. "A longitudinal study of the corporate life cycle." Management science 1984,30(10): 1161-1183. https://doi.org/10.1287/mnsc.30.10.1161

[20] Novotný.f, Podpiera.j. "The profitability life-cycle of direct investment: An international panel study." Economic Change and Restructuring ,2008,Volume 41, Issue 2, pp 143–153.  https://doi.org/10.1007/s10644-008-9045-5

[21] Park, Y. and K. H. Chen. "The effect of accounting conservatism and life-cycle stages on firm valuation." Journal of Applied Business Research, 2006,22(3): 75-92.  https://doi.org/10.19030/jabr.v22i3.1428

[22] Phung, D. N. and A. V. Mishra. "Ownership structure and firm performance: Evidence from Vietnamese listed firms." Australian Economic Papers ,2016,55(1): 63-98. https://doi.org/10.1111/1467-8454.12056.

[23] Quinn, R. E. and K. Cameron. "Organizational life cycles and shifting criteria of effectiveness: Some preliminary evidence." Management science, 1983,29(1): 33-51.https://doi.org/10.1287/mnsc.29.1.33

[24] Tavasoli, A., P. Saeidi, et al. "According to Agency Theory and Neoclassical Theory; New Ownership and Diversity of Public Sector Companies in Corporate Life Cycle." Advances in Mathematical Finance and Applications ,2018,3(1): 1-16. (In Persian) DOI: 10.22034/amfa.2018.539131                                                 

[25] V. Kousenidis, D. "Earnings–returns relation in Greece: some evidence on the size effect and on the life-cycle hypothesis."  Managerial Finance.  Technological Educational Institution of Thessa loniki.  2005,31(2): 24-54. https://doi.org/10.1108/03074350510769488

[26] Xu, B. " Life cycle effect on the value relevance of common risk factors." Review of Accounting and Finance 2007,6(2): 162-175. https://doi.org/10.1108/14757700710750838

[27] Yilmazkuday, Hakan, "Productivity Cycles in Public and Private Manufacturing Sectors: Evidence from Turkey".International Journal of Applied Economics, 2009,Vol. 6, No. 2, pp. 21-40http://dx.doi.org/10.2139/ssrn.1020061

[28] Zhai, J. and Y. Wang. " Accounting information quality, governance efficiency and capital investment choice." China Journal of Accounting Research ,2016,9(4): 251-266. https://doi.org/10.1016/j.cjar.2016.08.001