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  3. Investigating the relationship between the quality of disclosure policy, management profit forecast and the cost of equity

Investigating the relationship between the quality of disclosure policy, management profit forecast and the cost of equity

Number of pages: 123 File Format: word File Code: 29785
Year: 2014 University Degree: Master's degree Category: Librarianship
Tags/Keywords: conservatism - Cost of equity capital - Disclosure, earnings management forecast - Equity
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  • Summary of Investigating the relationship between the quality of disclosure policy, management profit forecast and the cost of equity

    Dissertation

    To receive a master's degree

    in the field of accounting

    Research abstract:

    The purpose of financial reporting is to provide appropriate information for decision making by users of financial information. Financial reporting may take the form of financial statements or other information transfer tools. Much of the information provided by financial reporting is based on predictions about future operations. The research method in this research is applied in terms of purpose and descriptive correlational in terms of method. Collecting information by library method and sampling method in the present research is systematic exclusion. The spatial domain of the research is the companies admitted to the Tehran Stock Exchange and the temporal domain is 6 years between 1386 and 1391. Also, to analyze and test the research hypotheses, the multivariable linear regression method was used. The results of the research showed that there is an inverse and significant relationship between the expected profit quality policy and the cost of equity. Also, there is a direct and significant relationship between information asymmetry and cost of equity. Companies with quality earnings have a lower risk of attracting investors for financing. Therefore, corporate resource providers are looking to invest in companies that have quality profits. In fact, the entry of capital and financing is easier for institutions and companies that have quality profits because they create a reasonable confidence in investors to obtain the desired return. On the other hand, companies that experience low-quality or low-quality profits must provide a higher rate of return than other companies in order to attract the attention of investors. Therefore, the rate of return increases from the point of view of investors and suppliers of financial resources and the cost of capital from the point of view of companies and institutions. The results obtained from the test of the two hypotheses proposed in this research confirm the explanations presented. 

    Key words:

    disclosure, forecasting profit management, cost of equity capital, conservatism

    Introduction:

           The importance of access to appropriate information related to the issue of decision is such that in a democratic society, transparency of information and the possibility of access to it are considered among the investor's rights. In evaluating the business environment of the countries, the World Bank pays attention to information disclosure as one of the important indicators. The demand for financial reporting and disclosure arises from the asymmetry of information and the existence of conflicts of interest between managers and external investors. And information disclosure plays an important role in reducing these issues. Therefore, governments monitor the stock market for a variety of purposes. Accurate, efficient and unbiased information flow contributes to the good functioning of the capital market, meets the needs of all users and increases economic growth and stability in society. Mandatory disclosure is imposed at the national or regional level by government authorities and professional organizations, and all companies, regardless of size and financial accounting system, financial resources, and other factors affecting disclosure, are required to comply with it. The purpose of mandatory disclosure is to meet the information needs of users and guarantee the quality of information through compliance with standards and laws. Article 2 of the Securities Market Law also emphasizes the development of a transparent, fair and efficient securities market in order to protect the rights of investors. The costs and benefits of mandatory disclosure are not fully understood. One of the potential features of mandatory disclosure is its binding nature. If the company is not obligated to disclose, it has an incentive to not provide information or to manipulate information. Financial reporting may be done in the form of financial statements or other information transfer tools. Much of the information provided by financial reporting contains predictions about future operations. Information outside the financial statements is mainly provided for this purpose. In addition to the information disclosed outside the financial statements, the financial statement information that is reflected in the financial statement items is widely based on management's forecasts and estimates.Therefore, it is expected that due to the managers' incomplete estimations of the business future of the companies, the information disclosed through financial statements and outside of it will contain common errors. Therefore, better transparency and disclosure creates better information for shareholders. The research that has been done shows that a good disclosure improves the accuracy of analysts' forecasts of profits in the following years. According to economic logic and rational behavior, investors invest where the rate of return is equal to their expected rate of return. On the other hand, the expected return of investors depends on the riskiness of the company's future information. The vulnerability of information is also affected by the amount of confidential information of the company and the inaccuracy of public information. Therefore, the higher the amount of confidential information of the company, or the lower the accuracy of the information provided, the higher the company's riskiness and the higher the investors' expected return. On the other hand, managers of business units, as responsible for preparing financial statements, with more knowledge of the company's public and confidential information than the users of financial statements, potentially try to present the situation of the business unit more favorably. It was not possible to provide this capital through one or more people, therefore large investments were made through the attraction of small capitals by joint stock companies. Due to the characteristics of public companies, including the ability to easily transfer shares of these companies, the stock exchange markets flourished, and thus the users of financial information of companies increased. Today, economic development is based on access to financial resources for investment. This is because the decision of the investors regarding the investment in turn depends on the existence of proper financial reporting. Financial reporting discloses the allocation of capital resources in a commercial company and its profitability. Disclosure is a comprehensive term in accounting and covers almost the entire financial reporting process. One of the basic principles of accounting is the principle of disclosing all important and relevant facts about financial events and activities of business units. The aforementioned principle requires that financial statements be prepared and presented in such a way that, in terms of reporting purposes, firstly, they are timely, relevant and reliable, and secondly, they are comparable and understandable. That is, it can help the users of financial statements to make informed decisions (Alivar, 2012). In fact, the main purpose of disclosure is to help users in making investment decisions, interpreting the financial status of companies, evaluating management performance, forecasting future cash flows. In this regard, all the important facts of an economic unit should be properly and completely disclosed, so that it is possible to make a decision and prevent confusion. Disclosure must be made through legal reports including basic financial statements that contain all important, relevant and timely information, and this information must be presented in an understandable and complete manner; To enable users to make informed decisions. (Malekian, 1376). In the definition of disclosure, Hendrickson and Vonberda (1991) have defined: "Disclosure generally means the reflection of information. But accountants consider this word to have a more limited meaning and consider it to mean the reflection of financial information of a business entity in the form of financial reports, which are usually presented annually. Riahi Belkowi (2011) considers disclosure to include information that is useful for the average investor and does not cause the reader to mislead. More clearly, the principle of disclosure means that no information of interest to ordinary investors should be removed or hidden (Riahi et al., 2008). (2007) in this research, agency theory [3] is used to determine the factors affecting the voluntary disclosure of financial ratios.

  • Contents & References of Investigating the relationship between the quality of disclosure policy, management profit forecast and the cost of equity

    List:

    Page Title

    Abstract

    Chapter One: Research Overview

    Introduction: 2

    1-1 Statement of the Problem: 2

    1-2 Necessity and Importance of Research: 5

    1-3 Research Question: 6

    1-4 Research Hypothesis: 6

    1-5 Basic objectives of the research: 6

    1-6 Research variables: 6

    1-7 Research scope: 8

    1-8 Research statistical population: 9

    1-9 Research statistical sample: 9

    1-10 Definition of words and specialized terms: 9

    1-11 General structure of the research: 10

    Chapter Two: A review of research literature

    Introduction: 12

    2-1 Definition of accounting conservatism: 12

    2-2 The place of conservatism in accounting standards: 14

    2-3 The difference between conservatism and caution: 15

    2-4 Types of conservatism: 15

    2-5 Reasons for using conservatism: 16

    2-6 Criticism of conservatism: 17

    2-7 Defense of conservatism: 18

    2-8 Accruals and conservatism: 19

    2-9 Conservatism evaluation criteria: 20

    2-10 Cost of capital: 22

    2-10-1 Cost of debt: 23

    2-10-2 Cost of preferred stock: 23

    2-10-3 Cost of common stock: 24

    2-10-4 Cost of retained earnings: 24

    2-10-5 Weighted average cost of capital (WACC): 24

    2-11 Different theories about capital structure: 25

    2-11-1 Net profit approach: 27

    2-11-2 Operating net profit approach: 28

    2-11-3 Traditional approach: 28

    2-11-4 Miller and Modigliani approach: 29

    2-11-4-1 Criticisms of MM theory: 31

    2-11-5 Preferred theory: 32

    2-11-6 Parallel framework Static: 32

    2-11-6-1 cost of adjusting the debt ratio: 33

    2-12 agency theory: 34

    2-12-1 conflict of interest: 34

    2-12-2 information asymmetry and "biased selection": 35

    2-13 research background: 37

    2-13-1 External researches: 38

    2-13-2 Internal researches: 42

    2-14 Summary of the chapter: 51

    Chapter three: Research implementation method

    Introduction: 53

    3-1 Statistical population: 53

    3-2 Statistical sample: 54

    3-3 territory Research: 54

    3-4 Research Type: 54

    3-5 Data Collection and Classification: 55

    3-6 Research Method: 56

    3-7 Research Variables: 57

    3-8 Research Hypotheses: 59

    3-9 Concerned Issues in Model Estimation: 59

    3-10 Data analysis method: 64

    3-11 Advantages of using panel data: 64

    3-12 Estimation of regression model with panel data: 65

    3-12-1 How the AR sentence works: 66

    3-12-2 Choosing the right model in consolidated data: 67

    3-13 Chapter Summary: 70

    Chapter Four: Data Analysis

    Introduction: 72

    4-1 Descriptive Study of Research Data: 72

    4-2 Test of Normality of Dependent Variable and Error Term 73

    4-3 Results of Tests and Estimates: 75

    4-4 Chow Test or the test of structural changes related to hypotheses: 75

    4-5 Hausman test related to hypotheses: 76

    4-6 Variance heterogeneity: 77

    4-6-1 methods of identifying variance heterogeneity: 77

    4-6-2 methods of resolving variance heterogeneity: 78

    4-7 review Existence of collinearity: 78

    4-7-1 Solution of collinearity detection: 79

    4-8 Manay test of research variables: 80

    4-9 Test of hypotheses: 81

    4-10 Chapter summary: 82

    Chapter five: Conclusion and suggestions

    Introduction: 84

    1-5 research summary of hypothesis test results: 84

    5-2 Assumptions and test results: 87

    5-3 suggestions based on research hypothesis findings: 88

    5-4 suggestions for future research: 88

    5-5 research limitations: 88

    Sources and reference

    Persian sources: 89

    Latin sources: 92

    Appendices

    Appendix A: Statistical research population: 98

    Appendix B: Software outputs: 100

    Sources:

    Sources and reference

    Persian sources:

    Adams, J. and Thomas, Abdul Qadir. 2004, Sukuk: Structuring Patterns,53

    3-1 Statistical population: 53

    3-2 Statistical sample: 54

    3-3 Scope of research: 54

    3-4 Type of research: 54

    3-5 Data collection and classification: 55

    3-6 Research method: 56

    3-7 Research variables: 57

    3-8 research hypotheses: 59

    3-9 issues of concern in model estimation: 59

    3-10 data analysis method: 64

    3-11 advantages of using panel data: 64

    3-12 regression model estimation with panel data: 65

    1-12-3 How the AR statement works: 66

    3-12-2 Choosing the right model in consolidated data: 67

    3-13 Summary of the chapter: 70

    Chapter four: Data analysis

    Introduction: 72

    4-1 A descriptive study of the research data: 72

    4-2 The normality test of the dependent variable and the error sentence 73

    4-3 The results of the tests and estimates: 75

    4-4 Chow test or test of structural changes related to hypotheses: 75

    4-5 Hausman test related to hypotheses: 76

    4-6 Variance heterogeneity: 77

    4-6-1 Methods of identifying variance heterogeneity: 77

    4-6-2 methods of solving the heterogeneity of variance: 78

    4-7 checking the presence of collinearity: 78

    4-7-1 solution to detect collinearity: 79

    4-8 Mana test of research variables: 80

    4-9 test of hypotheses: 81

    4-10 chapter summary: 82

    Chapter Five: Conclusions and Suggestions

    Introduction: 84

    5-1 Research Summary, Hypothesis Test Results: 84

    5-2 Assumptions and Test Results: 87

    5-3 Suggestions Based on Research Hypothesis Findings: 88

    5-4 Suggestions for Future Research: 88

    5-5 limitations of research: 88

    Sources and reference

    Persian sources: 89

    Latin sources: 92

    Appendices                                     

    Appendix A: Statistical population of the research: 98

    Appendix B: Software outputs: 100

     Sources:

    Sources and reference

    Persian sources:

    Adams, J. and Thomas, Abdul Qadir, 2004, Sukuk: Structuring patterns, issuance and investment, translated by: Majid Pireh and Nasser Shahbaz, 1388, Imam Sadiq (AS) University Publications and Stock Exchange Organization.

    Azer, Adel and Momeni, Mansour, 1390, statistics and its application in management: statistical analysis, Publications of Organization for the Study and Compilation of Academic Humanities Books (SAMET).

    Ebrahimi Kardler, Ali and Hosni Azar Dariani, Elham, 1385, Investigating profit management during the initial public offering in companies listed on the Tehran Stock Exchange, accounting and auditing reviews.

    Abzari, Mehdi and Dastgir, Mohsen and Qolipour, Ali. (1386), review and analysis of financing methods of companies listed on the Tehran Stock Exchange, Economic Review Quarterly.

    Azzazi, Mohammad Ismail and Farkhi Ostad, Mostafa and Farkhi Ostad, Mojtabi, 1390, comparison of IPO returns and Islamic compound bonds (with an emphasis on partnership bonds), Accounting Research Quarterly.

    Eskandari, Jamshid, 1391, financial accounting, publications Kiyomarth.

    Eskini, Rabia, 1388, Reflections on the structure and legal nature of public and private institutions and companies, Financial Research Quarterly.

    Anwari Rostami, Ali Asgharukhtan Lo, Mohsen, Spring 1385 "Comparative review of the ranking of top companies based on profitability ratios and indicators of the Tehran Stock Exchange". Accounting and auditing reviews, no. 43, pp. 25-43

    Ezdinia, Nasser and Abzari, Mehdi and Saveh Darodi, Saeed, spring 2016, "The relationship between investors' expected rate of return using the capital asset pricing model and the price-to-earnings ratio of shares in the Tehran Stock Market" Journal of the Faculty of Administrative Sciences and Economics of the University of Isfahan, 19th year, number 1, p.75-90

    Bazargan Lari, Abdul Reza, 1388, basic concepts of statistics and probability, Aizh Publications.

    Hassanzadeh brothers, Rasool and Kamranzadeh Azmareh, Abdol Rahim, 1388, a study of profit management in companies listed on the Tehran Stock Exchange, accounting research.

    Bahar Moghadam, Mehdi and Hosni Fard, Habiba, 1387, a study of the relationship between real financial events and profit management in companies listed on the stock exchange. Tehran Securities, Accounting Research Quarterly.

    Parsaiyan, Ali, 1390, Theory of Financial Accounting, written by William Scott, 2003, Terme Publications.

    Tehrani, Reza and Fani Assal, Mohsen, Zamestan 1386 "The relationship between cash from operations and accrued interest with stock returns of companies listed on the Tehran Stock Exchange" Financial Research, Volume 9, No. 24, Fall, pp. 21-32. Jones, Charles, 2009, Investment Management, Reza Tehrani and Asgar Noorbakhsh, 2011, Negah Danesh Publications. Qiyazi, Ruholah and Karimi, Mohammad Baqer, 2013, smoothing of profit and information uncertainty, accounting and audit reviews.

    Hass Yeganeh, Yahya, 2017, the effect of corporate governance on reducing profit management, Accounting Information Quarterly.

    Khodadadi, Vali and Kargarpour, Khatereh, Spring 2018 "Investigating the relationship between operating cash flow and liquidity ratios with stock returns in the company accepted in Tehran Stock Exchange", Financial Accounting Quarterly, Year 1, Number 1, Pages 75-60

    Dastgir, Mohsen and Abzari, Mehdi and Qalipour, Ali, 2016, review and analysis of financing methods of companies listed in Tehran Stock Exchange, master's thesis, Shahid Chamran University of Ahvaz.

    Rahmani, Mahmoud, 2014, the effect of financing methods on Stock prices of companies admitted to the stock exchange, master's thesis, University of Tehran.

    Rahimian, Nizamuddin and Meimand, Mehdi Ebrahimi (2012). The relationship between disclosure quality and conservatism in Tehran Stock Exchange. Accounting experimental research quarterly. 2012; 2 (4):1-19.

    Rahimian, Nizamuddin, 1380, a reflection on financing methods, accounting magazine, number 146.

    Roodpashti, Faridun and Simber, Farshid and Tutian, Sadiqeh, Tabastan (1384) guidebook. Tehran", Economic Research. Number 2 (series 17), pp. 237-263.

    Tehran Stock Exchange Organization, 1386, Code of Conduct Principles of the Company, Publications of the Stock Exchange Organization.

    Tehran Stock Exchange and Securities Supreme Council, 1390, Guidelines for Issuing Lease Bonds, Publications of the Stock Exchange Organization.

    27.

Investigating the relationship between the quality of disclosure policy, management profit forecast and the cost of equity
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