Investigating the effect of timeliness and reliability of financial reports on irrational pricing of earnings and its components

mohammad soadatnia¹ mohammad tamimi² hossein sghalalnejad³

1) M.A Accounting group, Dezfoul branch, Islamic Azad University, Dezfoul, Iran.
2) Assistant Professor of Accounting group, Dezfoul branch, Islamic Azad University, Dezfoul, Iran.
3) M.A Accounting group, Dezfoul branch, Islamic Azad University, Dezfoul, Iran.

IOI Code : XYCF-ADHHA
Publication : 2nd.International Congress on Management, Economy, Humanities and Business Development(icmba.ir)
Abstract :
    The investors’ incorrect presumptions on the earnings and its cash and accruals components persistence result in the phenomenon of accrual anomaly. The existence of such phenomenon results in stocks mispricing by shareholders and finally result in non-optimal allocation of financial resources in capital market. This research, investigates the effect of timeliness and reliability of financial reports on the irrational pricing of stocks using of earnings and its components in firms listed in Tehran stock exchange from 2002 to 2012. To this end, the simultaneous equation system estimation method and the rational pricing test of Mishkin (1983) are applied. The results indicate that using of earnings and its components resulted to irrational stock pricing, but increase in timeliness and reliability of financial reports, decrease the amount of irrational pricing of stocks (using accruals and operating cash flows).

Keywords : earnings operating cash flow accruals rational pricing mishkin (1983) test