Investigating the relationship between accounting profit transparency and stock liquidity risk in Tehran Stock Exchange

Dissertation for receiving a master degree in business administration

Financial orientation

Abstract:

In this research, the relationship between profit transparency and liquidity risk in companies listed on the Tehran Stock Exchange is investigated. In this research, we will check that increasing the transparency of companies' profits reduces liquidity risk. The dependent variable of liquidity risk research and the independent variable of research is profit transparency. Bart model was used to measure profit transparency and Amihud criterion was used to measure liquidity risk. The statistical population of the research is all the companies admitted to the Tehran Stock Exchange that were active in the stock exchange during the research period between 1382 and 1390. After collecting the desired data, it is categorized and summarized through Excel software, then the primary variables of profit transparency are used to estimate the coefficient of determination (R2) according to Barrett, and on the other hand, the liquidity risk variable is measured using the Amihud criterion and is calculated through Excel software. In the last step, the transparency of profit and the cost of equity capital are processed through Eviews and SPSS software, thus with multivariate regression, the purpose of which is to measure the relationship are variables and research hypotheses are tested by using the obtained model outputs. The results of the research showed that there is a negative and significant relationship between profit transparency and liquidity risk. Keywords: profit transparency, liquidity risk, financial leverage, Bart model, Amihud criterion. One of the basic issues in investment is asset evaluation. The intrinsic value of each asset is the current value of the asset's future cash flows, which in addition to the time of occurrence, the discount rate is also considered. The discount rate or the expected return of any asset shows the lost return under equal risk conditions resulting from the acquisition of that asset. One of the factors affecting the risk of assets is their liquidity (Darakhshandeh, 2012). The role of the liquidity factor is important in the valuation of assets, because investors are concerned about whether there is a suitable market for them if they want to sell their assets. Empirical evidence also shows that the liquidity factor plays an important role in decision-making, but despite many studies conducted by researchers in this field, there is no uniformity in choosing an acceptable measure of market liquidity (Zhang, 2007). Finance is transparent. (Michael A. Goldstein 2006)

Lack of transparent information causes unfavorable decisions and as a result waste of economic resources, destruction of capital markets and ultimately backwardness and economic poverty and reduction of public welfare.  In this regard, the question arises as to whether the transparency of accounting profits, which is the main quantitative measure of financial information, leads to more people being encouraged to trade shares and as a result, the risk of stock liquidity decreases. In simpler terms, is the claim that the transparency of profit is a reassurance for investors and as a result an incentive to do more transactions, stay in the market, or enter potential investors in the market, which are parameters for reducing the risk of liquidity, is it sufficiently accurate or not? On the other hand, knowing the usefulness of transparent information and the transparency of the reported profit, investors decide with more certainty the stock price, either by themselves or by their analysts. As the markets develop, newer tools are defined to meet the needs of investors. Investors accept an asset with a higher risk if it earns them a higher return, and therefore, one of the factors affecting the asset's risk is its liquidity. The lower the liquidity, the less attractive the share. Recent research focuses on investors' attitudes about liquidity and whether liquidity is representative of the systematic risk factor or not, and seeks the best definition of the illiquidity ratio. In this regard, Amihud (2002) has defined the ratio of illiquidity as the ratio of the absolute value of the daily stock return to the trading volume of that stock on the same day.Another thing that has been taken into consideration recently is the amount of floating shares of the company. Free floating stock is a percentage of a company's stock that is available to investors for trading in the stock market and can be traded without any restrictions (Omri, 2003). Weil defines free floating shares as a share of capital available for sale in the market and uses it as a measure of liquidity (Zhang, 2007). Now the question arises whether this statement is acceptable in the Iranian market or not? Research:

The results of the present research can be used in the capital market, also in the standardization and formulation of accounting standards, one can look at this research and in necessary cases, use it for the formulation of the standard. Research can be one of these, as well as investment companies or agencies related to the capital market, or any investor who can use the results of research to make decisions. Considering that in Iran, the relationship between liquidity risk of the stock market and profit transparency has not been measured and researched, despite the major effects it has had on investors' decisions, and considering that liquidity is a dependent variable and mostly in The field of economics and financial management has been discussed, it is explained with an independent variable called profit transparency from the field of accounting, and this is one of the advantages of this research, which is closely related to the capital market on the one hand and accounting issues on the other hand.

1-4) The theoretical framework of the research:

Using advanced scientific models in the advanced and semi-advanced financial markets of the world, which are a variety of goods and products of the type of financial assets. and have real assets, it causes dynamism, transparency, high liquidity, persuasion and confidence of investors, therefore, the design, investigation, application and implementation of such models in growing societies is an effective factor in moving the market towards dynamism and health.

Profit transparency model:

In this research, the model of Barrett et al. has been used to define profit transparency. This transparency model introduces the simultaneous change of profit and changes of profit with stock returns. In this research, the criterion for measuring profit transparency according to Barrett and Landzeman is equal to the coefficient of determination (R2) of the regression caused by stock returns on profits and changes in profitability.  In other words, the index that measures the transparency of profit is the coefficient of determination (R2), which is obtained from the regression of stock returns against profit and its changes. This index is interpreted as profit transparency, because profit and changes in profitability indicate changes in the company's economic conditions, which are measured by stock returns.

1-5) Research objectives:

Financial reports are one of the most important products of the accounting system, one of whose main goals is to provide information necessary to evaluate the performance and profitability of an economic enterprise. The need to achieve this goal is to provide transparent information in such a way which fulfills the decision-making needs of users and establishes information symmetry between them in order to attract potential investors to the stock market and also make shareholders inclined to more transactions, which will lead to stock trading and ultimately increase liquidity and reduce the risk of liquidity.