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The relationship between profit quality and stock returns in pharmaceutical companies admitted to the Tehran Stock Exchange (2013-2015)

Number of pages: 103 File Format: word File Code: 30359
Year: 2013 University Degree: Master's degree Category: Management
Tags/Keywords: Pharmaceutical companies - Profit quality - Stock returns - Tehran Stock Exchange
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  • Summary of The relationship between profit quality and stock returns in pharmaceutical companies admitted to the Tehran Stock Exchange (2013-2015)

    Dissertation to receive a master's degree (M.A)

    Trend: "Finance"

    Dissertation abstract (including summary, objectives, implementation methods and results obtained):

    Shareholders and investors in determining the value of the company should pay attention to the quality of the profit in addition to the quantity of the profit. It's liquidity and sustainability. In other words, the value of a company's shares does not depend only on the profit per share of the current year, but on our expectations from the future of the company and the profitability of the coming years and the confidence factor regarding future profits. Accruals, which as one of the indicators of the quality of profit, is the difference between the accounting profit of a company and its cash flow. The large volume of accruals shows that the amount of profit is much more than the positive cash flow. And the duration of profit stability, which is another measure of profit quality, means the repetition of current profits. That is, the greater the stability of profits, the higher the quality of reported profits is assumed to be. In this way, the relationship between the quality of profits through accruals and its component components and the stability of profits and stock returns has been studied. The main purpose of this research is as follows: 1) Are the different components of profit quality Are the shares of pharmaceutical companies accepted in the Tehran Stock Exchange effective?

    The research method is descriptive, exploratory and correlational, and the research methodology is applied and exploratory. In the main assumptions, the role of total accruals and profit stability has been examined and the results show that it can be accepted that companies' accruals and profit stability do not affect stock returns with small or large amounts. This issue can be a sign of the lack of market reaction to the amount of accruals and profit stability by companies. By examining the sub-hypotheses, it can be seen that the components of accruals, i.e. discretionary and non-discretionary accruals and profit stability, based on them, show that it can be accepted that the performance of these companies is not affected by these components. And the existence of a direct relationship between discretionary and non-discretionary items and the stability of ordinary stock returns has not been confirmed.

    In this research, the role of accruals and stability has not been confirmed. Profit in the explanation of the quality of profit in pharmaceutical companies admitted to the Tehran Stock Exchange has been investigated and the relationship between the quality of profit through the stability of profit and accruals and its constituent component, ordinary stock returns, has been studied. The studied sample includes pharmaceutical companies during the period of 1386-1390.

    Accruals have been separated into discretionary and non-discretionary components. To determine the relationship between the quality of profit and return 1 main hypothesis and 3 sub-hypotheses have been tested.

    The main purpose of this research is as follows:

    1) Are the different components of the profit quality of pharmaceutical companies listed in the Tehran Stock Exchange effective? And on the other hand, according to the orientation of investors (based on risk and return), investments will be directed towards industries that have more profit and less risk, and this will ultimately lead to the optimal allocation of resources. Considering the developments that are being developed, which are facing many threats, in order to solve their economic problems, there is a need to find appropriate ways to make better use of their available resources. Authenticity is one of the important ways of registering and developing investment. Accounting profit and its related components are among the information that are considered by people when making decisions. This figure is calculated and recognized based on accrual figures. According to the commitment approach, if income is realized and expenses are incurred, profit can be reported. Profits are also used from forecasts and estimates, hence the question arises as to how much this figure can be trusted when making a decision. The answer to this question becomes important because making a wrong decision due to insufficient and incorrect information causes the distribution of resources to be done unfairly. This party is expected to prepare and present information in a way that reflects the state of the company in the best way, due to their greater knowledge of the company. On the other hand, they may receive rewards for reasons such as staying in the company.On the other hand, it is possible that due to reasons such as staying in the company, receiving bonuses, and other factors, the director may or may not want to make the situation of the company look good. Therefore, the quality of the company's profit is affected by the reporting principles and the discretion of their managers. The final goal of this research is to explain the role of accrual figures and profit stability and its effect on the quality of profit of pharmaceutical companies admitted to the Tehran Stock Exchange. In this chapter, as the first chapter From this research, an attempt is made to provide a general introduction of the structure of the research. In this regard, the topic of the research has been described and then the importance and necessity of the research has been stated.

    After the general familiarity with the topic and the necessity of the research, the objectives of the research have been pointed out. The subject, sample, methods of data collection, analysis and analysis are stated and finally the operational definition of the research variables is mentioned.

    1-2-Statement of the research problem:

    During the last 3 decades, the topic of profit quality has been the subject of special attention of researchers and the effort has been to achieve a logical and reliable method of evaluating the profit quality and to identify the factors influencing it. The components and other factors related to it are discussed, so that the prediction of future cash flows and as a result the determination of stock value is facilitated. Attention to the issue of profit quality has been widely discussed in both the accounting and investment management professions. In this context, there are direct or indirect references to this issue in the texts of accounting, financial management, investment management, instructions and regulations of the stock exchange, and reports of stock brokers. has been The attention of the accounting profession is based on the goal that the reported net profit fairly reflects the operational performance of the business unit, but the use of the reported profit in other sciences is to achieve other specific goals. For example, financial analysts evaluate the quality of profit for this purpose to determine a relevant level of profit and predict the future net profit, and as a result determine the stock price of a company. In determining the value of the company, shareholders and investors should pay attention to the quality of the profit in addition to the quantity. The quality of the profit means being close to cash and its sustainability. In other words, the value of a company's shares does not depend only on the profit per share of the current year, but on our expectations from the future of the company and the power of profitability in the coming years and the confidence factor regarding future profits. (Jahankhani, Zarif Fard, 1374) Although there are no uniform definitions of the quality of profit, as a definition, it can be said that it is a quality profit that: 1) is closer to cash.     2) Ability to continue.            3) It has the ability to grow.        When it is discussed about measuring the amount of a qualitative attribute, since there are no specific scales and criteria, like quantitative measurement tools, related quantitative criteria and bases that are examples of the qualitative characteristic in question should be identified and by measuring them, acceptable measured levels of the desired quality level can be achieved. It is an obligation that is considered as an indicator of the quality of profit. Accrual items show the difference between the accounting profit of a company and its cash flow. The large volume of accrual items shows that the amount of profit is much more than the positive cash flow. Specifically, the profit of cash flow is different because the recognition of income and expenses is done according to their time and importance and not necessarily based on the inflow and outflow of cash, which refers to the principles Accounting also has fulfillment and compliance. (Chan et al., 2006) - The main purpose of this research is as follows:

    1) Are the different components of the quality of profit on the stock returns of pharmaceutical companies listed on the Tehran Stock Exchange effective?

    a) evaluate management performance.

    b) evaluate the company's profitability over a long-term horizon.

    c) predict future profits.

    d) assess the risks of investing in the company or lending to it.

    regardless of how the reported profit figures are used, the quality of profit should One of the most important definitions is as follows: the more the reported benefit helps the users to make better decisions, the higher quality the benefit is considered.

  • Contents & References of The relationship between profit quality and stock returns in pharmaceutical companies admitted to the Tehran Stock Exchange (2013-2015)

    List:

     

    Title

    Chapter One: General 1

    Preface 2

    1-1-Introduction 2

    1-2-Statement of the problem 3

    1-3-Importance and necessity of research 5

    1-4-Research objectives.6

    1-5-Research hypotheses.6

    1-6-Research method.7

    1-7-Statistical community.7

    1-8-Research time domain.7

    1-9-Sampling method and determination of sample size.7

    1-10-Data collection tools. 8

    1-11-Data analysis method. 8

    1-12-Research limitations. 9

    1-13-Explanation of words and corrections: 8

    1-13-1- Accrual items. 8

    1-13-2- Accrual items (optional-non-optional). 9

    1-13-3- Normal stock return.10

    1-13-4- Sustainability of profits.10

    1-14- Data standardization factor.11

    1-15- The general structure of the research.11

    Chapter two: Background of the research.13

    Part I- Theoretical foundations.14

    2-1- Introduction 14

    2-2- Generalities. 14

    2-3- Explanation of the difference between net profit and cash from operational activities. 15

    2-4- The concept of profit from the perspective of investors. 16

    2-5- The concept of reported profit. 17

    2-6- The importance of cash flows. 18

    2-7- Emergence of profit quality theory: 19. 2-7-1- The concept of profit quality. 20

    2-7-2- Importance of profit quality assessment. 23

    2-8- Factors affecting the quality of profit evaluation: 24

    2-8-1- Accounting methods. 25

    2-8-2- Accounting estimates. 27

    2-8-3-Type of industry.27

    2-8-4-Financial characteristics.28

    2-8-5-Political factors....29

    2-9- Concepts and methods of profit quality measurement:.30

    2-9-1-Concept of profit quality based on time series of profit characteristics.30

    2-9-2-Concept The quality of profit based on the relationship between profit, accrual items and cash. 31

    2-10-Accrual items: 31

    2-10-1-components of accrual items. 34

    2-10-2-The role and importance of accrual items. 35

    2-10-4-other concepts of profit quality from the perspective of accruals... 35

    2-11- The relationship between the point of view of usefulness for decision-making. 36

    2-12- Profit quality analysis. 37

    2-13- Profit manipulation methods. 37

    2-14- Fundamental analysis of profit quality. 38

    2-15- The concept of return. 40

    2-16- Approaches and criteria for evaluating the performance of companies. 41

    2-17- Share return. 41

    2-18- The difference between the views of management and shareholders in calculating return. 42

    2-19- Factors affecting share return: 42

    2-19-1- Violation CAPM model. 43

    2-19-1-1-Earnings to price ratio (E/P).44

    2-19-1-2-Company size. 45

    2-19-1-5-Financial leverage. 45

    2-19-2-Fama-Fringe model. 45

    2-20- Methods of calculating stock returns. 46

    2-21- Sustainability of profit. 46

    Part II-Background of the research topic. 47

    A) Research done abroad From the country 47. 2-22-Investigations related to the quality of profits 47. 2-23-Investigations related to the relationship between profits and returns 51. 2-24-Investigations related to cash flow: 54. 2-24-1-Informative content of cash flow 54.

    2-24-2-Cash flow forecast 55

    2-24-3-Cash flow in the study of profit and loss relationship 56

    2-25-Investigations related to changes in cash interest.

    2-26-Investigations related to accruals: 58

    2-26-1-Money relationship Cash flow from operational activities and accruals of Babazde shares. 2-26-2- Quality of accruals and profit: the role of liability estimation errors. 58 2-26-3- Relationship between reliability of accruals and stability of profit.

    2-27-Sasan Miyar(1374) .59

    2-28-Rizvan Hejazi(1375) .60

    2-29-Ahmad Zarif Fard(1378) .60

    2-30-Ahmed Badri(1378).60

    2-31-Arif Babapour (1380) Vakawe Mehrani (1382)62

    2-38- Iraj Norush and Rezamjidi (1383).62

    2-39- Ahmad Badri, Seyedjalal Sadeghi Sharif and Saeed Toosi (1384).62

    2-40- Bitamshaikhi, Sasan Mehrani, Kaveh Mehrani and Gholamreza Karmi (1384).63

    2-41- Mohammad Hossein Ghaemi, Amin Reza Khoshdel Nizami (1385).63

    2-42- Karimi and Sadeghi (1389).63

    2-43- Marzieh Abrisham Chi (1389).63

    2-44- Mohammadzadegan (1385).64

    2-45- Summary of related studies Research.64

    2-46- Summary.72

    Chapter three: Research methodology.74

    3-1- Introduction.75

    3-2- Statement of the problem.76

    3-3- Research hypotheses.77

    3-4- Statistical population.78

    3-5- Statistical sample.78

    3-6- Research method.79

    3-7- Time period of research.79

    3-8- Information collection.79

    3-9-Measurement of independent and dependent variables:.80

    3-9-1-Research model.80

    3-9-2-Accrual items.80

    3-9-3-Items Optional and non-optional. 81

    3-9-4-Sustainability of profit. 82

    3-9-5-Normal return on shares. 83

    3-10-Standardizing factor. 84

    3-11-Definition of probability value: 85

    3-11-1-Steps of checking statistical assumptions. 88

    3-11-1-1-Checking the correlation coefficient between independent variables and dependent variables.88

    3-11-1-2-Checking the underlying assumptions.88

    3-12-Summary.88

    Chapter four: Analyzing and analyzing information.90

    4-1-Introduction.91

    4-2-Amartosifi. Research variables: 91

    4-2-1- Descriptive analysis of returns. 91

    4-2-2- Descriptive analysis of standardized optional accrual items. 92

    4-2-3- Descriptive analysis of standardized non-optional accrual items. 93

    4-2-4- Descriptive analysis of standardized profit stability. 93

    4-3- Data normality test 94

    4-4- Inferential statistics (checking the research hypotheses): 94

    4-4-1- Checking the main hypothesis (relationship between profit quality and stock returns). 94

    4-4-2- Checking the first hypothesis (relationship between optional accrual items and stock returns). 95

    4-4-3- Checking the second hypothesis (relationship between accrual items) Non-discretionary and return three. 95

    4-4-4- Examination of the third hypothesis (relationship between profit stability and stock returns). 96

    4-4-5-Multivariable regression. 96

    4-5- Comparison of stock returns by companies. 98

    4-6- Comparison of stock returns by year. 98

    4-7- Summary. 99

    Chapter five: Conclusion and suggestions. 100

    5-1- Introduction. 101

    5-2- Summary of the topic in the research method. 102

    5-3- Summary of the research findings. 103

    5-4- Conclusion. 103

    5-5- Suggestions related to the topic. 104

    6-5-Suggestions regarding future researches. 104

    Sources. 106

    Source:

    A) Persian sources:

    1- Skanderli, Taher (1383), "Investigation of factors affecting the accuracy of profit forecasting by managers of companies listed on the Tehran Stock Exchange", Master's Thesis, Islamic Azad University Mashhad Unit, p. 45. 2- Afshari, Hossein (2008), "Structural investigation of stock predictability in Tehran Stock Exchange", Master thesis, Islamic Azad University, Mashhad Unit, p. 34.

    3- Anwari Rostami, Ali Asghar et al., (2009), "Investigation of the relationship between economic value added, profit before interest and taxes, cash flows Operational activities with the value of shares of companies listed on the Tehran Stock Exchange, Accounting and Auditing Reviews, Vol. 37, p. 7. 4- Badri, Ahmadtotsi, Saeed (2004), "Investigation of factors influencing the return on ordinary shares of companies listed on the Tehran Stock Exchange," Master's thesis, Islamic Azad University, Mashhad.

    5- Barzegar, Qadraleh (1378), "Analytical investigation of the effect of cash and committed components of operating profit in predicting future profits of companies listed on the Tehran Stock Exchange", Master's thesis, Shahid Beheshti University of Tehran, p. 26.

    6- Thaghafi, Ali and Kurdestani, Gholamreza (1383), "Investigation and explanation of the relationship between the quality of profit and market reaction to profit changes", accounting reviews and Accounting, vol. 37, p. 56.

    7-Thaqafi, Ali and Hashemi, Seyed Abbas, "Analyzing the relationship between operating cash flows and accruals of financial statements, presenting a model for predicting operating cash flows", Tehran University Faculty of Accounting and Auditing, 11th year, number 38, winter 2013, p. 29.

    8-Thaqafi, Ali Veslimi, Mohammad Javad (2004), "fundamental variables of accounting and stock returns", Journal of Social Sciences and Humanities of Shiraz University, serial 43, special issue of accounting, p. 61.

The relationship between profit quality and stock returns in pharmaceutical companies admitted to the Tehran Stock Exchange (2013-2015)
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