Signaling through Discretionary Accruals and Its Impact on Capital Investment and ROA in Financially Constrained Firms

Abstract

AbstractThe current research examine the signaling through discretionary accruals and its impact on capital investment and ROA of financially constrained firms in Tehran Stock Exchange. For this purpose, four hypothesis have been developed. three multivariate liner regression models and panel data used for examining the research hypothesis. The sample of current research consists of 128 firms listed in Tehran stock exchange during the 1386-1393. The results show that financially constrained firms with high investment opportunities have significantly higher discretionary accruals compared to financially constrained firms with low investment opportunities. Findings also show that constrained high-accrual firms have higher earnings announcement returns compared to constrained low-accrual firms, and invest in projects that appear to improve ROA.

Keywords

• keywords: financial constraints
• investment opportunities
• signaling
• discretionary accruals
• capital investment