The Relationship between Cost of Equity and Risk in Earning Components (accruals and cash flows) in Tehran Stock Exchange Firms

Subject Areas :

حسین Karbasiyazdi ¹ , عبدالله Neami ² , M.S Miraghai ³

1 - استادیار دانشکده مدیریت و حسابداری-تهران جنوب
2 - استادیار دانشکده مدیریت و حسابداری-تهران جنوب
3 - کارشناس ارشد حسابداری

Received: 2015-11-04 Accepted : 2015-11-04 Published : 2010-10-23

Keywords: cost of equity, risk in earning, risk in accruals, risk in cash flows, OJ model,

Abstract :

Risk in total earning is a determinant for estimating the cost of equity,but when firm,s earnings are smoothed,aggregate earnings can conceal the risk of oprations.In such a case,it seems that the components of earning such as accruals and operating cash flows play an important role in risk measurement and cost of equity estimation.The purpose of this study is to invectigate the relationship between the cost of equity and the risk in earning components and also a better estimation of the cost of equity.There are 59 sample firms and the research method is correlation .For testing the three hypotheses,the researchers used regression analysis and Pearsonian correlation,and Tpaired method for testing the fourth hypothesis.The research results show that there is a weak and reverse correlation between the cost of equity and total earning risk and also between the cost of equity and the risk in operating cash flows and the risk in accruals.Other results show that estimation of the cost of equity is based on risk in earning components in comparison with total earning risk causes a better evaluation.