Role of Management Earnings Forecast Error in Stock Market Efficiency with Emphasis on Earnings and Operation Earnings Components

Document Type : Research Paper

Authors

1 M.A. of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

2 Assistant Professor of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

10.22103/jak.2019.13005.2840

Abstract

Objective: The purpose of this research was to investigate the role of management earnings forecast errors in stock market efficiency with emphasis on operation earnings and their components in the Tehran Stock Exchange from 2009 to 2017.
Method: Data was collected using document mining method, and the data analysis method was inferential. Panel data model and multivariate regression method were used to test the research hypotheses, using the Pethnoster test. In this study, the dependent variables are the abnormal stock returns and the first error of management forecast adjustment, and the independent variables are free cash flow and accruals.
Results: The findings of this study showed that operating earnings and their components have positive effects on future abnormal returns. Also, the persistence of operating earnings and their components have negative impacts on the first adjusted management earnings forecast errors. Other results suggested that adding management earnings forecast errors to the earnings persistence model and its components have no effect on future abnormal returns. In addition, it was found that adding abnormal returns to the earnings persistence model and its components affect the error of the first adjusted management earnings forecast errors.
Conclusion: In sum, the results of this study show that participants in the capital market do not consider the persistence of operating earnings and their components to be effective in their expectations, and take their effects less than real. Also, the current information from management earnings forecast errors has not changed market inefficiencies.

Keywords

References

کمالی اردکانی، محسن؛ ابراهیمی، محمدحسن. (1395). رابطه خطای پیش‌بینی سود با بازده غیر عادی سهام و ریسک سیستماتیک. کنفرانس بین‌المللی مدیریت و حسابداری، تهران، موسسه آموزش عالی نیکان. 22-1.
کرمی، غلامرضا؛ مرشدزاده بافقی، مهناز. (1393). ناهنجاری ناشی از عایدات، ناهنجاری ناشی از اقلام تعهدی و رابطه میان آن دو. دانش حسابداری، 3(19)، 26-7.
خلیفه‌سلطانی، سیداحمد؛ ملانظری، مهناز؛ دل‌پاک، سجاد. (1389). ارتباط خطی پیش‌بینی سود مدیریت و اقلام تعهدی. دانش حسابداری، 1(3)، 76-59.
صالح نژاد حسن؛ وقفی، حسام. (1395). تأثیر پیش‌بینی سود توسط مدیریت بر ریسک و ارزش شرکت. راهبرد مدیریت مالی، 4(1)، 124-103.
مشکی، مهدی؛ و عاصی ربانی، محمود. (1390). بررسی رابطه بین خطای پیش‌بینی سود مدیریت با بازده غیرعادی سهام و ریسک سیستماتیک شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. بررسی‌های حسابداری و حسابرسی، 18(66)، 68-53.
مهرانی، ساسان؛ طاهری، منصور. (1396). بررسی تأثیر بیش اطمینانی مدیریتی بر خطای پیش‌بینی سود. پژوهش‌های تجربی حسابداری، 7(2)، 163-147.
شهریاری، سارا؛ سلیم، فرشاد. (1393). بررسی و آزمون قیمت‌گذاری نادرست اقلام تعهدی غیرعادی در بورس اوراق بهادار تهران طی سال‌های 1381 تا 1389. مدیریت دارایی و تأمین مالی،2(3)، 16-1.
References
Ahmed, A.S., Nainar, S.K., Zhang, X.F. (2006). Further evidence on analyst and investor miweighting of prior period cash flows and accruals. The International Journal of Accounting, 41(1), 51-74.
Bradshaw, M.T., Richardson, S.A., Sloan, R.G. (2001). Do analysts and auditors use information in accruals? Journal of Accounting Research, 39(1), 45-74.
Meshki, M., Assi Rabbani, M. (2012). The relationship between management expectations error and abnormal stock returns and systematic risk in Tehran Stock Exchange. Quarterly Journal of Accounting and Auditing, 18(66), 53-68. [In Persian].
Chen, T., Xie, L., Zhang, Y. (2017). How does analysts' forecast quality relate to corporate investment efficiency? Journal of Corporate Finance, 43, 217-240.
Drake, M.S., Myers, L.A. (2011). Analysts’ accrual-related over-optimism: Do analyst characteristics play a role? Review of Accounting Studies, 16(1), 59-88.
Dechow, P.M., Dichev, I.D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59.
Dechow, P.M., Richardson, S.A., Sloan, R.G. (2008). The persistence and pricing of the cash component of earnings. Journal of Accounting Research, 46(3), 537-566.
DeFond, M.L., Park, C.W. (2001). The reversal of abnormal accruals and the market valuation of earnings surprises. The Accounting Review, 76(3), 375-404.
Gong, G., Li, L. Y., Xie, H. (2009). The association between management earnings forecast errors and accruals. The Accounting Review, 84(2), 497-530.
Elgers, P.T., Lo, M.H., Pfeiffer Jr, R.J. (2003). Analysts’ vs. investors’ weightings of accruals in forecasting annual earnings. Journal of Accounting and Public Policy, 22(3), 255-280.
Hirst, D.E., Koonce, L., Venkataraman, S. (2008). Management earnings forecasts: A review and framework. Accounting Horizons, 22(3), 315-338.
Hollie, D., Shane, P.B., Zhao, Q. (2017). The role of financial analysts in stock market efficiency with respect to annual earnings and its cash and accrual components. Accounting & Finance, 57(1), 199-237.
Lee, S., Matsunaga, S.R., Park, C.W. (2012). Management forecast accuracy and CEO turnover. The Accounting Review, 87(6), 2095-2122.
Lennox, C.S., Park, C.W. (2006). The informativeness of earnings and management's issuance of earnings forecasts. Journal of Accounting and Economics, 42(3), 439-458.
Kamali Ardakani, M.,Ebrahimi, M.H. (2016). The relationship of profit earnings error with abnormal stock returns and systematic risk. International Conference on Management and Accounting, Tehran, Nikan Institute of Higher Education, 1-22. [In Persian].
Karami, G.,Morshedzadeh Bafghi, M. (2014). Income-related anomalies, anomalies due to accruals and the relationship between them. Journal of Accounting Knowledge, 5(19), 7-26 [In Persian].
Khalifeh Soltani, S A, Melanazeri, M., Delpak, S. (2010). Relationship between profit earnings and accrual commitments. Journal of Accounting Knowledge, 1(3), 59-76 [In Persian].
Radhakrishnan, S., Wu, S.L. (2014). Analysts' cash flow forecasts and accrual mispricing. Contemporary Accounting Research, 31(4), 1191-1219.
Rees, L., Sivaramakrishnan, K. (2007). The effect of meeting or beating revenue forecasts on the association between quarterly returns and earnings forecast errors. Contemporary Accounting Research, 24(1), 259-290.
Mehrani, S., Taheri, M. (2018). Investigating the impact of management assurance on profit earnings error. Empirical Accounting Research, 7(2), 147-164 [In Persian].
Niskanen, S. (2016). Accrual anomaly and accounting standards-evidence from the adoption of IFRS by publicly listed companies in Finland. http://urn.fi/URN:NBN: fi:aalto-201609083347.
Saleh Nejad, H., Wafi, H. (2016). The effect of earnings forecasting by management on the risk and company value. Financial Management Strategy, 4(1), 103-124 [In Persian].
Shao, H., Ju, X., Li, Y. (2012). Review of research on the accrual anomaly in capital market. Future Computer, Communication, Control and Automation, Springer Science & Business Media.
Shahriari, S.,Salim, F. (2014). Investigation and testing of abnormal accrual pricing in Tehran Stock Exchange during the years 81-89. Asset and financing management, 2(3), 1-16 [In Persian].
Sloan, R.G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3), 289-315.
Subramanyam, K.R. (1996). The pricing of discretionary accruals. Journal of Accounting and Economics, 22(1-3), 249-281.
Paternoster, R., Brame, R., Mazerolle, P., Piquero, A. (1998). Using the correct statistical test for the equality of regression coefficients. Criminology, 36(4), 859-866.
Pincus, M., Rajgopal, S., Venkatachalam, M. (2007). The accrual anomaly: International evidence. The Accounting Review, 82(1), 169-203.
Tsao, S.M., Lu, H.T., Keung, E.C. (2018). Interim reporting frequency and the mispricing of accruals. Accounting Horizons, 32(3), 29-47.
Xu, W. (2010). Do management earnings forecasts incorporate information in accruals? Journal of Accounting and Economics, 49(3), 227-246.
Wang, Y., Chen, Y., Wang, J. (2015). Management earnings forecasts and analyst forecasts: Evidence from mandatory disclosure system. China Journal of Accounting Research, 8(2), 133-146.

Files

History

  • Receive Date: 09 November 2018
  • Revise Date: 17 May 2019
  • Accept Date: 04 August 2019

Share

How to cite

Statistics