This study examines therelationshipbetweenthe returns of two valueandgrowth portfolios andthereturnofmarketon 15 selected firms onTehranStockExchange over the period 2008- 2011. Thestudy divides the firms into two groups in terms ofthe ratios of price on earning as well as price on book value into two groups ofvalueandgrowth portfolios. Using some regression analysis, thestudy has determined a positive and meaningful relationshipbetweenvalueportfolioandmarketreturn when themarket is onthe upside but this relationship is not meaningful during the bear session. The results indicate that during the bull sessions, value portfolios provide better investment opportunities than growth ones do.
Tolerance values are used to show correlation between independence variables and they can be between 0 and 1. When the ratio is close to zero, there is a strong relationshipbetween these values and independent variables. The calculated values approach zero for co-linear tolerance and due to this linear independence of independent variables can be accepted. Variance inflation factor (VIF) is another factor to determine the linearity. The minimum valueof this factor is one and this will be possible when there is no linear relationshipbetween independent variables andthe more is this value , it is much more indicative of co-linearity between independent variables. According to this study, it can be seen that the independent variables have a relative weak linear relationship with each other. We accepted the linear independence ofthe independent variables based on calculated VIF. One ofthe common problems in pattern regression is the correlation between residuals. In order to check the presence or absence of this problem we use Durbin-Watson test during which the desirable number has been optimized and eventually the autocorrelation problem among the residuals will be resolved. In this study, the evaluation of residual autocorrelation has been done based on Durbin-Watson statistic and results are summarized in Table 5:
In this study, we try to make some experimental evidence for sectional auto-correlation source and structure in available TSE to create other approved tools for helping investors and other users as adapting economical invest mental deciding. Sectional auto correlation theory is another interesting method for studying stock trend. The first studyon this subject is associated with return prediction for big portfolios including companies' stock. (Lo & MacKinlay, 2000; Chordia & Swaminathan, 2001). The sectional inconsistent auto-correlation structure is called as a forward-backward effect, which depends on size and related to slower adjustment of little stocks in published news in market (Badrinath et al., 1995). These findings followed with some doubts about sectional auto-correlation natural and sources against auto-correlation among returns. On one side, some people believe that forward-backward relationship proposed by Lou and MakKinely is artificial and is explainable onthe basis of auto-correlation among returns (Banz, 1981; Summers & Waldman, 1990; McQueen et al., 1996; Chang et al., 1999). Other people believed sectional auto correlation is valid and other domains of forward-backward relations except size are studied. For example, Berinan (1993) concluded that some investment analyzers obey speed of adjusting stock price in current news.
Drawing upon a sample of 19 publicly listed companies ontheTehranStockExchange, this paper has examined the effect of intellectual capital on firm performance. In this paper, we have used Tobin’s Q and EPS to test the firms’ performance. The results have indicated that the intellectual capital had no effect on firm performance in both hypotheses. This research is not without its limitations. The selected companies were chosen fromTehranStockExchange. Different countries have various accounting practices andstock exchanges around the world have different disclosure and other listing requirements. As the Pulic model uses data fromthe published financial statements, any differences in national accounting rules may influence results in other countries. It is also limited to publicly listed companies as financial information for privately held companies is not readily available. The shares of private companies are not traded freely and are not subjected to market forces. Hence, their market values are not easily or reliably determined. In addition, the selected companies were analyzed over a three-year period between 2010 and 2012. Data from earlier years cannot be used because there was no requirement to disclose labor costs prior to the year 2010.
Vernon J Richardson (2000) performed an empirical investigation ontherelationshipbetween information asymmetry and earnings management forecasted by Dye (1988) and Trueman and Titman (1988). When information asymmetry becomes high, stakeholders do not have necessary resources, incentives, or access to relevant information to monitor manager's actions, which gives rise to the practice of earnings management (Schipper, 1989; Warfield et al., 1995). Empirical results recommend a systematic relationshipbetweenthe magnitude of information asymmetry andthe level of earnings management in two different settings. Tucker and zarowin (2006) implemented a new technique to study whether income smoothing garbles earnings information or it could improve the in formativeness of past and current earnings about future earnings and cash flows. They measured income smoothing by the negative correlation of a firm’s change in discretionary accruals with its change in pre-managed earnings. Applying the approach of Collins et al. (1994), they reported that the change in the current stock price of higher-smoothing firms could contain more information about their future earnings. This achievement is robust for decomposing earnings into cash flows and accruals and for controlling for firm size, growth, future earnings variability, private information search activities, and cross-sectional correlations.
Concerning the long-run relationshipbetweenthe macroeconomic variables andthestock price, Ramin et al (2004) found that there is a significant positive long-run relationshipbetweenthe inflation rate, level of real economic activity, short-term interest rate, exchange rate, money supply and Singapore stock returns. He also found a significant negative relationshipbetween long-term interest rate andstockreturn. Abdul (2008) also studied whether there is a long-run interaction between macroeconomics variables andthestock prices in Pakistan, and he found the same result reached by Asaolu and Ogunmuyiwa (2011). Abdul (2008) examined, using the Granger causality, the short-run and long-run relationshipbetween macroeconomic variables andstock prices in Pakistan. The macroeconomic variables considered in this study are the consumer prices, industrial production, exchange rate andthemarket interest rate. The author found that there is evidenceof long-run relationshipbetweenthe macroeconomic variables mentioned andthe Pakistan stockmarket. This relationship is supported by the hypothesis that the health ofstockmarket results fromthe improvement in the health of economy. Concerning the short-run interaction betweenstock prices andthe macroeconomic variables, the author has concluded that the macroeconomic variables, beside the interest rate, are unrelated with thestockmarket in the short-run. Using the Granger causality, Error Correction Model andthe Johansen Co-integration test, Asaolu and Ogunmuyiwa (2011) also committed to examine whether macroeconomic variables explained Nigeria stockmarket movements. The Johansen Co-integration test affirmed that there is a long run relationshipbetween average share price andthe macroeconomic variables. The Error Correction Model test revealed that around 60% ofthe variations in thestock prices are explained by the macroeconomic variables.
One ofthe most important issues in financing corporate is to find appropriate method to make a wise selection between getting loans and increasing the number of shares. There are different theories for making appropriate financing methods. The primary purpose of this paper is to investigate this issue based onmarket timing theory. The proposed model of this paper chooses selective companies fromTehranStockExchange. The proposed model of this paper uses regression analysis on two different models. The primary purpose ofthe first model given in this paper is to studythe effect ofmarket timing theory. In this part of survey, we measure the effect ofthe ratio ofmarketvalue to book valueonthe sources of financing firms though increase in equities. Based onthe results, we can conclude that as the ratio ofmarketvalue to book value increases, firms tend to increase their equity though an increase to the number of shares. The first hypothesis of this paper is confirmed. The second model is associated with therelationship with mean ratio ofmarketvalueon weighted book valueand Leverage andthe results of this paper do not confirm such relationship.
Brav et al. (2005) surved 384 financial executives and conduct in-depth interviews with an additional 23 to detect the factors that drive dividend and share repurchase decisions. They reported that maintaining the dividend level was on par with investment decisions, while repurchases were made out ofthe residual cash flow after investment spending. Brockman and Unlu (2011) investigated the agency cost version ofthe lifecycle theory of dividends by taking advantage of cross-country variations in disclosure environments and confirmed that the lifecycle theory of dividends explains dividend payout patterns around the world. Cao et al. (2011) investigated disproportional ownership structure and pay–performance relationship by looking on some evidencefrom China's listed firms. Chae et al. (2009) tried to find out how corporate governance has affected payout policy under agency problems and external financing constraints. Chen and Dhiensiri (2009) tried to find determinants of dividend policy by looking into some evidences from New Zealand. Crutchley and Hansen (1989) presented a test ofthe agency theory of managerial ownership, corporate leverage, and corporate dividends. Denis and Osobov (2008), Easterbrook (1984) and Grullon and Michaely (2002) tried to find out why firms pay dividend.
The contemporaneous and causal relationshipbetweenstockreturn volatility and trading volume has also been the subject of a substantial stream of empirical studies. Lee and Rui (2002) found evidenceof a positive contemporaneous as well as a feedback relationshipbetween trading volume and volatility in US, UK and Japanese markets. Leon (2007) found that trading volume had predictive power for stockreturn volatility in the regional stockexchangeofthe West African Economic and Monetary Union. Khan and Rizwan (2008) examined therelationshipbetweenreturn volatility and trading volume in Pakistan’s stockmarketand found a positive contemporaneous relationshipbetween them. At the same time they observed that there exists a bidirectional causal relationshipbetween volatility and volume. Medeiros and Doornik (2008) found the support for a positive contemporaneous as well as bidirectional causal relationshipbetweenreturn volatility and trading volume in Brazilian stockmarket. Mahajan and Singh (2009) traced a positive contemporaneous relationshipbetweenreturn volatility and trading volume in the Indian stockmarket. Their study also provided evidenceof one-way causality from volatility to trading volume. Thammasiri and Pattarathammas (2010) found a positive contemporaneous relationshipbetweenreturn volatility and trading volume in TFEX market, however, no causal relation from trading volume to return volatility was established. Tripathy (2011) examined the Indian marketand found a positive contemporaneous as well as bidirectional causal relationshipbetweenreturn volatility and trading volume. Chuang et al. (2012) studied the Asian markets and found evidenceof a positive contemporaneous relationship for 6 out of 10 markets. Their study also provided some evidenceof bidirectional causal relationship for 8 out of 10 markets. And a significant causality running from volatility to volume was detected only for China. They didn’t find any causal effect for Thailand. Choi and Kang (2013) found a positive volume-volatility relationship for four Asian markets: Korea, Japan, China and Hong-Kong. Their study found volume causes volatility in cases of Hong-Kong, China and Japan whereas volatility causes volume in cases of Hong-Kong, China and Korean market. Celik (2013) also found evidenceof a positive relationshipbetween volatility and volume in Istanbul stockmarket both in pre-crisis and post-crisis periods whereas bidirectional causality was traced in post-crisis period and in pre-crisis period no causality was established.
In this studythe dynamic ofthe Brazilian stockmarket is explored fromthe point of view ofthe behavior of a group of stocks that were frequently present in the Sao Paulo StockExchange Index (Ibovespa) in the period between 1995 and 2003. Using the sample we studythe possible factors that determine the behavior of securities. The predictability ofthe behavior of a stock is related to the volatility ofthe asset’s return. If the volatility ofstock returns follows a logic that can be foreseen then it is possible to estimate the variation in the price ofthe security. Obviously the possibility of producing an estimate ofthe behavior of a stock reflects the fact that markets are not fully efficient. Various works have been developed with the idea of producing an explanation for the behavior ofthe volatility ofstock returns. Among the approaches existing on volatility behavior three will be developed in this study: the gearing theory (Christie, 1982), the volatility feedback theory (Pindyck, 1984) andthe divergence of opinion between economic agents model (Hong and Stein, 2003). According to Lo and Wang (2000), the price and traded volume of assets are fundamental building blocks when it comes to constructing any theory about the interaction of agents in themarket.
Interest rate plays an important role on financial market in any different sectors from real state to auto industry. An increase on interest rates will increase cost of borrowing money from banks, which reduces profitability. The proposed studyof this paper investigates therelationshipbetween bank interest rates on performance ofstockexchange over the period 2001-2010. The proposed study categorizes interest rates into five different categories including short-term interest rate, special short-term rate, one-year, two-year, three-year, four-year and five-year terms. The results of performing regression analysis have confirmed that there are some positive and meaningful relationshipbetween interest rate in all groups and performance ofstockexchange.
Using the deviations fromthe put-call parity, we investigate the existence of relevant information about the future stock price not yet incorporated in thestockmarket. In order to capture the extent ofthe mispricing between pairs of calls and puts’ options, we calculate daily volatility spreads as the weighted average ofthe difference between implied volatilities. We use the option signals provided by our measure to create stock portfolios, assessing the informational flow betweenthe two markets. We find a strong evidence that relatively expensive calls in respect to puts carry more information about future stock returns than the opposite: the hedge portfolio earns a four-week abnormal returnof 31.6 bps. We further extend our research to studythe effect of liquidity and informed trading. Our results suggest that the most liquid options are the ones conveying more information about future stock returns. Furthermore, informed trading is only relevant when its probability in thestockmarket assumes high values. Finally, we show an increase of returns’ predictability in the post-financial crisis period, which contradicts the argument present in literature that this flow would tend to disappear due to the learning process ofthemarket participants. Overall, we provide evidenceonreturn predictability by the incorporation in thestockmarketof information intrinsic to the deviations from put-call parity.
During the past few years, there have been growing interests among researchers to studythe effect of block share ownership on corporate earning especially in developing countries. The purpose of this paper is to consider the impact of block ownership on performance of firms in terms of profitability. The proposed study develops two econometric models and applies them on selected firms fromTehranStockExchange over the period 2002-2010. The primary objective of this survey is to find therelationshipbetweenreturnof assets and Tobin's Q as dependent variables with eight independent variables including company size, sales growth, block ownership, debt and liability ratios, etc. The results of implementation of ordinary least squares on two econometric models reveal that while there is no meaningful relationshipbetweenreturnof asset and block ownership there is a meaningful relationshipbetween block ownership and Tobin's Q.
Subramanyam (1996) claimed that market connects thevalueofthe firm with discretionary accruals to predict discretionary accruals, future earnings and variation in stock income. Teoh et al. (1998) pointed out that IPO smoothing firms manage their earnings via discretionary accruals. In fact, there is a significant converse relationship among the discretionary accruals, future net, and cash flow variations. Based on their findings, the discretionary accruals were in a high rank in the year when the firm offered its stock for the first time; andthe accruals had negative relationship with future net income and operational cash flows. Conducting a research onthestock price from operation in the years after the initial public offerings, Sloan (1996) found out that earnings continuity in a firm depends onthe relative importance of its cash components and earnings accrual. If investors cannot differentiate these two components of accounting income, they will definitely make a mistake. In this experiment, when he found out that stock prices were not totally under the impact of discretionary accruals or cash flow and investors are not capable of analyzing its effects onstock price, his idea regarding the reduction of earnings continuity due to increase in discretionary accruals and increase due to cash flow increase, was rejected. Chan et al. (2001) conducted a research ontherelationshipbetween discretionary accruals and future stockreturn. The results showed that stockreturn in the firms having higher discretionary accruals was reduced in the period after reporting current period. It means that having qualified with lower earnings, firms receive low return.
Han (2013) concentrated onthe profitability of short term and medium-term momentum and contrarian impact in Chinese capital market. The result of their survey indicated that the momentum and contrarian impact existed in Chinese capital market. Using momentum strategies and contrarian strategies could earn abnormal return under various investment techniques. Besides, the profitability of momentum and contrarian strategies based on various market caps was also assessed. The regression analysis disclosed that historical returns could contribute the most to momentum return. Rahnamayerodpooshti et al. (2008) investigated 60 companies in Teheran's stockexchange over the period 1994-2005 by considering size, index PE, relative power application, contrast application onvalueandvalueof transactions. Damury et al. (2008) investigated overreaction the amount of investors to application samples that accepted previously in stockexchangeof Teheran. The achieved results showed that investors in stockexchangeofTehran reacted against 3 sell factors, profits before unwanted tings and output of stocks of companies but did not over reacted against cash flow of companies.
The main question of this research is to understand on how earnings management influences OCF management. In addition, the primary goal is to provide the determinants of OCF management for firms’ analysts, investors, creditors, managers and other users ofthe financial information, regulators of accounting andstockexchange organization. In the following, literature review, variables and research questions are investigated.
Hajiha (2012) identified the critical influencing factors on risks proposed in Audit Risk Model (ARM), in Iranian audit environment of Iran by using 60 audit partners and managers. The panel included two equally divided groups, one from audit organization, a governmental organization, andthe other from private audit firms. She employed two rounds of Delphi and 58 critical risk factors obtained from auditing literature and Iranian auditing standards and present them to the experts. There were 43 factors categorized as important factors to evaluate the risks in ARM. The results specified the most important factors, which were in inherent risk factors. She made a comparison with a similar study in Taiwan and differences indicated that in professional judgment issues like risk assessment, the consideration of particular culture and environment could contribute to enhance the precision of assessments, especially in assessing control risk factors.
Empirical evidence suggests that firms which have experienced fast growth, through increased external funding and by making capital investments and acquisitions, tend to show bad operating performance and lower stock returns, whereas firms that have experienced contraction, through divestiture, share repurchase and debt retirement, tend to show good operating performance and higher stock returns. So, this study aimed to analyze therelationshipbetween asset growthandstockreturn in the Brazilian stockmarket, and it tested the hypothesis that asset growth is negatively related to future stockreturn. To do this, the methodology was divided into 3 steps: verifying 1) if asset growth anomaly exists; 2) if this relation may be explained by the investment friction hypothesis and/or by the limits-to-arbitrage hypothesis; and 3) if asset growth is a risk factor or mispricing. In addition, the analysis was carried out both at a portfolio level and an individual assets level. The sample included all the non-financial firms listed at B3 from June 1997 to June 2014. As for the main results, this study found that the asset growth effect exists, both at theportfolio level andthe individual assets level, although it is sensitive to the proxy. About the effect’s materiality, this study concluded that the asset growth effect is not economically relevant, since it is not observed in big firms, regardless ofthe proxy used, a fact that makes it difficult to explore this effect. Another finding is that the asset growth effect may not be related to the limits-to-arbitrage hypothesis and to the financial constraint hypothesis; also, this effect may be considered a risk factor, suggesting that the investment effect documented in the Brazilian stockmarket may be explained by the rational asset pricing perspective. Therefore, capital market professionals should take into account the asset growth factor in asset pricing models for better investment risk assessment.
In this paper, we have proposed an empirical study to measure the impact ofthemarket size andthe ratio of book valueonmarketvalueon excessive return. Thestudy gathers the necessary information from some of active stock shares traded onTehranStockExchange over the period of 2010-2011. The proposed model of this paper has used linear regression analysis to investigate therelationshipbetweenthe excessive returnand other factors. We have divided the information into seven equal groups and fitted the regression model using ordinary least square technique. The results have indicated that there is a negative relationshipbetween size and excessive returnand there is a positive relationshipbetweenthe ratio of BV/MV and excessive return. Although the results of both tests were positive, we have to be more cautious about what have reported onthe second hypothesis.
Various theories based onthe efficient market hypothesis try to justify the investors’ behaviors. Stockportfolio theory, capital asset pricing model (CAPM), Fama and French three-factor model, Arbitrage pricing model andthe representation theory are of these models. Investment managers, Stockportfolio managers, and other real and legal persons trading stocks and other capital assets in thestockmarket, needs to study various factors affecting investment returns in different economic conditions to maintain and increase thevalueof their investment portfolio. CAPM model is based onthe assumption that investors using the theory ofStockportfolioand reducing systemic risk, according to their degree of risk aversion, choose one ofthestock efficient baskets. In this model, the expected investment return rate is directly related to risk, in other words, if the investor tolerates more risk, more efficiency also will be expected.