The Impact of Income Management on the Performance of Shares Valuation Models

Subject Areas : Journal of Investment Knowledge

Ali  Baghani ¹ (Assistant Professor Department of Accounting Islamic Azad University, South Tehran Branch.)

Received: 2013-04-04 Accepted : 2013-07-11 Published : 2013-07-11

Keywords: income management, Error Diference, Valuation Models, Residual Income Model (RIM), Discounted Cash Flow Model (DC, Short Term Horizon, Long Term Horizon,

Abstract :

Choosing a suitable method for stock assessment can be responsive to the needs of investors in determining the fair value of the stock. But the question is whether earnings management can affect performance evaluation models? In order to answer this question, In this study hypotheses regarding the impact of earnings management on the performance evaluation model based on Residual income and based on discounted cash flow in the two – year short term periods and seven –year long term periods were developed. This study, which was performed by the correlation analysis, by using regression analysis and Means Comparison test, tries to provide the possibility of the optimal model selection for investors. The population of this study is Companies listed on the Stock Exchange which has been active in the period of 1379-1390 years. The results indicate that in the short-term horizon, earnings management hasn't a significant effect on the predictive ability of the listed evaluation models. But in the long-term time horizon Income smoothing has a significant effect on the evaluation models’forecast error, and in the long-term timescales Residual income model has Lower prediction error.