Determining the Relationship between Accruals Quality and Cash Holdings for Listed Companies in the Tehran Stock Exchange

Abstract

The aim of this study is to investigate the relationship between the accruals quality and the cash holdings for the listed companies in the Tehran Stock Exchange. For determining the accruals quality, Dechow and Dichev model (2002) and to separate accruals in two components, namely the Discretionary and Non-discretionary, adjusted Jones model was employed. To measure of the cash holdings in exchange companies, Ozkan and Ozkan (2004) and Opler et al (1999) models were used. Our study sample included 54 listed companies in the Tehran Stock Exchange (TSE) during 2003 to 2009. For testify the hypotheses, pooled data (fixed effects) and econometric software of Eviews 6, were exerted. The results of the study reveal there is a positive and no significant relationship between the accruals quality and the cash holdings, but this relationship between discretionary and non-discretionary accruals with cash holdings was negative and significant and negative but no significant, sequentially. Too, findings show bigger companies and companies have other cash assets other than cash, hold less cash but conversely, companies have more return on cash (opportunity cost on investing in cash assets) hold more cash.

Keywords

• accruals quality
• non-discretionary and discretionary accruals items
• cash holdings