Dissertation for Master's Degree
Major: Accounting
Abstract:
In this research, 80 companies admitted to the Tehran Stock Exchange, during the period from 1387 to 1391, have been tested to investigate this issue in the stages of their life cycle. The independent variable of this research is information uncertainty and the dependent variable of this research is the risk of falling stock prices; And information asymmetry is used as a moderating variable, and size variables and financial leverage are also used as control variables. In this research, 3 main hypotheses have been formulated in order to achieve the research objectives. The obtained results indicate that assuming other factors remain constant, information uncertainty reduces the probability of the company's stock price falling in the future. But in companies with low and high information asymmetry, information uncertainty has no effect on reducing the possibility of the company's stock price falling in the future.
Key words: information uncertainty, the risk of falling stock prices, information asymmetry.
The source of information for the majority of capital market participants is the financial reports published by companies, which are periodically available to the public and are the basis for the decisions of potential and actual investors. It is for buying and selling and investing in the stock market (Jensin[1] and McLing, 1996, 307).
Since decisions are for the future and many events and events outside of the will and control will happen in the future, which have a significant impact on the decision of managers and investors, therefore, managers and investors are faced with a kind of uncertainty about accounting information that this uncertainty can have an impact on decisions. users and thus the stock price. In this chapter, the generalities of the research are presented, in fact, after an introduction at the beginning of the chapter, the statement of the problem is explained. Then we describe the goals, motivation, hypotheses, importance of the topic and the research method and discuss the scope of the research in terms of time, place and subject.
1-2 Study history
Fattahi (2009) has investigated the effect of conservatism on reducing the probability of a fall in share prices, following Kim and Zhang (2010), and almost similar methods have been used in both researches.
Moradi et al. (2013) examined a sample of 90 companies listed on the stock exchange, the results of which indicate the existence of a negative and significant relationship between conservatism and falling stock prices. In their research, to measure the stock price fall, they have used the stock price fall criterion in the study of Kim and Zhang (2010), whose measurement was based on the quarterly returns of companies; The only control variables of this research are: company size and the ratio of the market value of equity to the book value of equity. Basu (1997) and Gioly and Hein (2000) criteria have also been used to measure conservatism.
Moradi et al. High information asymmetry is not statistically significant and information asymmetry has not been able to increase the effect of conservatism in reducing the risk of falling stock prices. Fatahi (2009) has investigated the role of conservatism in reducing the risk of falling stock prices in a similar way. This research only includes the investigation of the main hypothesis of the effect of conservatism on reducing the risk of falling stock prices, and in it, they used the control variable of company size. In the aforementioned research, the final sample includes 116 companies admitted to the stock exchange. The result of the research indicates the existence of a negative and significant relationship between conservatism and the risk of the company's stock price falling in the future.
Norush and Ebrahimi Kardler (2008), investigated the role of corporate investors in reducing information asymmetry in the Tehran Stock Exchange. In this research, investment companies and other commercial institutions were defined as corporate investors. The findings of this research showed that companies with a high percentage of corporate shareholders reported more information about future profits than companies with a low percentage of corporate investors, and as a result, more information asymmetry was observed in companies with less corporate ownership..
Kim and Zhang (2010) have claimed that their work is the first research done in order to examine the relationship between accounting conservatism and the risk of stock price falls until 2010.
They used regression based on the market model to identify the periods in which the fall occurred. In their research, they also put forward and tested the second hypothesis, which focuses on investigating the stronger effect of conservatism on reducing the risk of falling stock prices in companies with higher information asymmetry. They state that since the effect of conservatism has been confirmed as a mechanism for reducing information asymmetry in many studies, and also because companies with higher information asymmetry are more prone to falling stock prices, then it can be expected that the effect of conservatism in reducing the probability of falling stock prices in this Companies should be more intense. This hypothesis was also confirmed based on the evidence from the American Stock Exchange. 1-3 Statement of the problem The purpose of accounting and financial reporting is to provide the information needs of users. The main means of transferring information to persons and external users are basic financial statements. The profit and loss statement is one of the basic financial statements that is of great importance in evaluating the responsibility of the management or their accountability for the resources they have. Since the responsibility of preparing financial statements rests with the management of the business unit, and due to managers' direct access to information and having the right to choose optional accounting methods, it is possible to manage profits.
Researchers have proven the positive relationship between stock prices and management forecasting errors and state that managers' forecasting errors have economic value from the perspective of investors; If the profits are less than the expected amount, the company's stock price will probably decrease.
One of the economic consequences of information opacity is that it may affect the willingness of investors to buy the company's stock. In this way, less transparency causes less liquidity and as a result increases the company's capital cost due to increased liquidity risk. In addition, high transaction costs due to low liquidity may reduce share price discovery and thus increase the uncertainty associated with share prices. On the other hand, based on the concept of information asymmetry, high profit variability leads to more informational benefits for informed investors than for uninformed investors. The increase in variability of reported profits makes the trading losses of uninformed investors appear larger and forces them to exit the market. According to the definition of Hutton et al. (2009) and Kim and Zhang (2010), if the stock price of a company has fallen sharply in the year under review, the stock price of that company has fallen in that year. Since the sharp declines in stock prices may be the result of a general decline in prices in the market, the general state of the market should also be taken into account, and the sharp decline in stock returns should be interpreted in comparison with the market return.
In this case, the question raised is whether the uncertainty of investors and shareholders and other decision-makers regarding the information provided by companies is effective in increasing the risk of the company's stock falling? The research to answer them is:
What kind of relationship is there between information uncertainty and the risk of falling stocks in the research area?
1-4 Theoretical framework and research model
One of the economic results of information uncertainty is that it may affect the willingness of investors to buy company shares. In this way, less transparency causes less liquidity and as a result increases the company's capital cost due to increased liquidity risk. In addition, high transaction costs due to low liquidity may reduce the possibility of discovering the stock price and thus increase the uncertainty associated with the stock price and cause the stock price to fall, and vice versa. Therefore, the first hypothesis has been formulated assuming that other factors remain constant, information uncertainty reduces the probability of the company's stock price falling in the future.
Information asymmetry exists if the managers and the market have the same information about the company. Therefore, managers and the market tolerate uncertainty about the company equally.