The Role of Accruals, Cash Flows and their Information Content in Operating Profitability of the Stock Returns

Subject Areas :

Razieh Fatehpour ¹ , Jalil Farokhi ²

1 - دانشجوی دکترای حسابداری، باشگاه پژوهشگران جوان و نخبگان، واحد بین الملی کیش، دانشگاه آزاد اسلامی، کیش، ایران
2 - دانشجوی دکترای، حسابداری،دانشگاه آزاد اسلامی ـ واحد بین‌الملل کیش- تهران جنوب، گروه حسابداری.

Received: 2016-07-15 Accepted : 2016-09-17 Published : 2016-04-20

Keywords: Accruals, Stock Returns, Cash flows, Sharpe Ratio,

Abstract :

Different criteria have been offered so far to evaluate the performance of commercial units and at the time being the most usual and the most important criterion of performance evaluation and profitability of the institutes is the stock return which has a key role in investment. This criterion alone has had information content for the investors and is used to evaluate the performance and operations of a commercial unit. Whenever this criterion declines, it will be an alarm for the company and indicates that the company performance is not appropriate. This study aims to examine the role of components of cash flows and accruals and their information content in anticipating the stock return. The time period of the research consisted of 5 consecutive years from 2009 to 2014 and the research sample consists of 154 companies listed in Tehran Stock Exchange. In the current study the hypotheses testing method is panel data which was carried out with the use of software EVewis8, R3.1, SAS 9.4 and EXCEL2010 and according to the output of the software, the significance of the relationships between variables was investigated. The sample test results show that the cash component and profit accrual have a significant impact on future stock returns, but the effect of accrual component is larger than that of cash component. Also the results indicate that the effect of accrual component on future stock returns is significantly different from the effect rate of profit cash flow on future stock returns of companies with different Sharpe Ratio. The companies with higher Sharpe ratio, receive returns with lower risk.