THE IRANIAN ACCOUNTING AND AUDITING REVIEW
Year:2008 | Volume:14 | Issue:50|Papers Count:16

This paper studies the cash flows forecast models and compares the predictive ability of models based on absolute forecast error. Also in this paper, as the indicator of volatility of business environment, the effects of volatility of sales and volatility of operating profit have been used and the effect of firm size on predictive ability of each model has been considered. In order to study above mentioned, three following hypotheses have been tested in this paper: Hypothesis 1: the predictive ability of future cash flows based on accruals models is more than those models which only use the cash flows information. Hypothesis 2: the predictive ability of accruals based models and those models which only use the cash flows in their predictions, change as volatility of sales and volatility of operating profit. Hypothesis 3: the predictive ability of accruals based models and those models which only use the cash flows in their predictions, increase as the firm size increases. Models: In this paper the following four models have been tested: 1) Cash Flow Random Walk Model                           CFOi,t+1= CFO i,t 2) Cash Flow Regression Model                             CFOi,t+1= q0+q1 CFO i,t +Ui,t 3) Barth Model CFO i,t+1=j +jcf CFOi,t + jARDAri,t + jDINVi,t + jAP DAPi,t + jDDEPRi,t + joOTHERi,t + Ui,t 4) Total Accrual Model CFit+1=j0+ j1CFOi,t + j2ACCRUALs i,t+ Ui,tThe first two above mentioned models are based on cash flows and the other models forecast the future cash flow based on accruals. In hypothesis I the predictive ability of future cash flows is obtained for all models. Predictive ability of models is measured through the use of absolute forecast error and each model which has the lowest prediction error is used as an efficient model for cash flows prediction. Hypothesis 2 and 3 are tested through the use of Spearman correlation test between firm characteristics and the absolute forecast error (scaled by averaged total assets) of four models. In this paper the elimination method has been used as sampling method of this study. With application of this method a sample of 165 companies has been chosen and seven years related data has been taken from financial statement.Results: With consideration of absolute forecast error of models 3 and 4 which have been mentioned as accrual models in this paper, it can be understood that these models have lower absolute forecast error than cash models. Also based on lower absolute forecast error, model 4 is more efficient than other mentioned models. Therefore the Hypothesis 1 is proved. The first Hypothesis has been tested across different industries and as the results show, it has been proved in most industries. Evidence show that according to consideration of Spearman correlation test between volatility of sales and volatility of  operating income and models' absolute forecast error, volatility of sales and operating profit affect on models' forecast error. Therefore the absolute forecast error of models increases with increase in volatility of sales and operating profit as a result the second Hypothesis is also accepted. The third Hypothesis is rejected because of the weak correlation between the firm size and the absolute forecast error of cash flow models. Therefore there is no meaningful relation between the firm size and predictive ability of models. Conclusion: According to the results of this research and in comparison with cash flow based models, accruals based models have extra predictive ability. In model 3, components of accruals items and operating cash flow are used for prediction of future cash flow. According to obtained results, application of depreciation expense is not meaningful in above mentioned model and its coefficient equal to zero. This can declared as absence of effect of long term accruals on predictive ability of model 3. According to the results obtained in different industries it can be declared that transactions accomplished by motor vehicles and auto parts and machinery and equipment industries are mostly on cash basis and there is less relation between accruals and future cash flows but this is not true for abstract other industries and accrual models have been obtained as efficient models for cash flows prediction. Effect of firm characteristics on predictive ability of models: The results of Spearman correlation show that there is a relatively weak correlation between firm characteristics and predictive ability of models. But, it also show that the business environment of the firm effect on absolute forecast error of models. It is also possible that other factors such as firms operating circle inflation, growth and stagnation period effect on predictive ability of cash flows. According to obtained results there is no meaningful correlation between the firmsize and predictive ability of models. Especial economic environment of Iran and misrepresentation of cash flows has caused many firms, even large enterprises to present their statement of cash flows inaccurately. This may be a reason for absence of impressibility of absolute forecast error of models on thefirmsize.

In this study we investigate the possibility of earning abnormal returns through the use of contrarian trading strategy in Tehran Stock Exchange (TSE). Contrarian trading strategy states that stocks which had better performances in the past, should be sold and stocks that had poor performances, should be bought. This strategy is based on the belief that capital market shows overreaction to the recent information and determines the price of Winner stocks more than their real value and the price of less Losers than their real value. Consequently in the subsequent periods, market will recognize its mispricing and return reversal will be observed in these stocks. Five major industries of Tehran Stock Exchange (TSE) which were studied between the years of 1379 to 1384, formed statistical sample of this study. Statistical Method of T-test were used to analyze the gathered data. Results revealed that it is possible to increase return of investments on securities in the TSE through the use of contrarian investment strategy.

This paper investigates the value relevance of accounting information for firms' market values prediction. In the study the value relevance of Book Values, Earnings, Operating Cash Flows and Investment Cash Flows as proxies of accounting information are investigated for equity valuation of companies listed in Tehran Stock Exchange (TSE). We examine fifteen models and four independent variables, as well as the explanatory power of these variables. If accounting information can be used as relevant variables in prediction models of firms' market values then, the hypothesis of value relevance of accounting information can be accepted. For examining the relationship between research variables and firms' market values, four hypotheses, using four regression models, are tested. For more analysis, other eleven multiple regression models are used. Through examining the 15 models, we can select the superior model for ability of prediction. For hypotheses testing, a sample of 50 companies listed in Tehran Stock Exchange (TSE) is selected. The dada needed for the study is gathered manually via a variety of resources. The pooled data for years of 2001-2006 and fifty companies listed in TSE are used. The results indicate that book values and earnings have more value relevance than cash flows (operating and investment), and the model that includes these two variables is the strongest model among fifteen models. Also, there are not any significant changes in value relevance when cash flows are added to the models. The value relevance of book value and earnings in TSE is consistent with the results of the studies in most other countries [For example, Berger, P. et al (1996); Collinse, D.W. et al (1997); King, R. D., and J. C. Langli (1998); Ballas, A. A., Iranian Accounting &Auditing Review, Winter 2007, Vol. 14,No. 50 8 and Hevas, Dimosthenis. L (2005)]. Also, the results are consistent with the results of conducted research in Iran by Saghafi & Talaneh (2006) and Dastgir & Khodadadi (2007), the research done in Iran. Collectively, our results indicate that book value has the strongest prediction ability for firm market value. Combining it with earnings in a single model can yield the best prediction model.

The forecasts of the earnings per share is of special importance in investments. The importance of this forecasts is dependent to the it`s variation of reality. The less, the variation, the more acute, the forecasts and this matter is important both for the user and the producer. The manager try to estimate the future’s earnings per share in away that to get the user`s trust. In contrast, the investors can estimate the future’s earnings per share, using other methods like timeseries model (random walk model).This study compares the accuracy of this forecasts. To do this ,the forecasts of 279 firm studied using the method of the means` difference; these included 639 observation during 1381-84.The comparison of the difference between the two means showed that the manager` forecast is more accurate than the forecasts based on the forecasts based on random walk model. In addition, the managers` forecast of the firms` earnings is more accurate than the earning forecast through timeseries model in the form of the increase of the earning forecast than real earning in profitable firms and larger firms comparing to profit decrease in loss firms and smaller firms. 

The purpose of this study is investigating the relation between earnings quality and cumulative abnormal returns around the announcement of new equity issues from stockholders funds and receivables. In this study, earnings quality and cumulative abnormal returns has been measured respectively based on modified Jones model (1991) and market model. Also we used variance analysis and regression analysis for testing the relation between earnings quality and cumulative abnormal returns. The result of both test shows that there is no significant relation between earnings quality and market reaction to new equity issue announcement.

There is tendency in capital market to appraisal performance of investment company because it is same as appraisal performance of professional investor. Also investment period was being an effective factor on investment decision but how influence this factor investment company’s performance. In current study same as Morningstar Institution methodology if cases have 66 percentage of specific character, they would be in same group, so basis value of long term and short term investment in balance sheet, sample consist two groups, nine investment companies with long term period and five investment companies with short term period. For appraisal performance of investment company base on rate of return and risk, once base on monthly rate of return of investment company’s portfolio and once base on monthly rate of return of investment company’s stock, risk adjusted measures (sharpe, trynor and Jensen) accounted and research hypothesizes with Mann- Whitney U and T- Student tested. Some of data took from Rahavard-e-novin and Tadbirpadaz databases and some of data take from Tehran Stock Exchange site. 

Today companies are operating in a changing environment, so they have to cope themselves with these changing environment using different tools such as Information Technologies. In this case using this technology is increasing overtime. Measuring the impact of these technologies on company’s efficiency and outputs has been on a long debate. In this article we applied Data Envelopment Analysis (DEA) to measure these effects and to rank Iranian Stock Exchange listed companies. Results showed that DEA is a very strong technique in measuring the IT investment outputs based on efficiency rankings, also the BCC model of DEA is more powerful. 

Competition in financial services market especially between financial Consulting, Training and Research service providers (f-CTR-sp) are going to be more intensive than before. These companies as facilitators of developing financial entities should be competent to be effective. Accordingly some questions there exist as follows: in order to enable f-CTR-sp, what roles do (1) the authorized organizations and institutions, (2) the universities, (3) the enterprises which need f-CTR services and (4) the f-CTR-sp itself? In this study after identifying the models and factors of enabling f-CTR-sp, as a field survey experts were questioned on importance and situation of the factors in Iran financial business environment. Results show that based on experts’ opinion the factors are confirmed and most of them evaluated very important but not appropriate. Finally the enabling factors have been ranked and accordingly some applied recommendations provided.