The Relationship between Environmental Uncertainties and Current Stock Return

Subject Areas :

Bahareh Armat ¹ , Mohsen Dastgir ²

1 - کارشناس ارشد حسابداری دانشگاه آزاد اسلامی واحد نجف آباد
2 - استاد دانشگاه ازاد اسلامی واحد علوم و تحقیقات اصفهان

Received: 2015-05-07 Accepted : 2015-05-07 Published : 2013-11-22

Keywords: Environmental Uncertainties, Income Smoothing, Discretionary accruals,

Abstract :

The present study attempts at investigating the fact that how environmental uncertainties affect on firms' performance and profitability and what is the relationship between smoothed incomes and current stock return in the firms operating in uncertain environments. It is generally assumed that environmental uncertainties negatively affect firms’ performance and profitability. Therefore, to prevent their negative effects, managers attempt at smoothing reported incomes. Income smoothing creates harmony and consistency in income growth rate and increases the efficiency of future incomes’ prediction. As a result, current stock return is affected. In the research presented here, data is investigated annually for the time interval since 1385(2006) till 1389(2010). To test hypotheses, three multivariate regression models are employed To calculate discretionary accruals, model of Kothari et al is used. Furthermore, coefficient of variation of sales was considered as a criterion for environmental uncertainty of firms belonged to our studied sample. Findings indicate that environmental uncertainty creates many fluctuations in firms’ performance and profitability and to avoid its negative consequences, managers perform reported income smoothing using discretionary accruals and smoothed incomes have a significant relationship with current stock returns.

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