A study on relationship between abnormal accruals and future profitability: Evidence from Tehran Stock Exchange

Abstract

This paper presents an empirical investigation to study the relationship between future profitability and abnormal accruals on selected firms from Tehran Stock Exchange (TSE). The study selects 223 firms from TSE market over the period 2007-2011. Using the regression analysis, the study shows there was no meaningful relationship between abnormal earnings and future profitability when the level of significance is five percent. There are also seven sub-hypotheses associated with the proposed study of this paper. The results indicate that while there were no meaningful relationship between firm size, ratio of book value to equity, capital expenditure, earnings quality, earning forecasted error and book value leverage on one side and future earnings, the study confirms a significance relationship between market leverage and future earnings.

Keywords

• Tehran Stock Exchange
• Future profitability
• Abnormal Accruals
• Accruals