An Explanation of the Role of Earnings Quality in Increasing Stock Price Informational Content of Stock Price: Evidences of the Synchronous Flexibility

Document Type : Original Article

Authors

1 Assistant Prof, Faculty of Industrial Engineering and Management, Shahroud University of Technology, Shahroud, Iran

2 PhD in Financial Management, University Lecturer, Department of Management, Economics and Accounting, Faculty of Humanities, Golestan University, Gorgan, Iran.

Abstract

This study is aimed at explaining the role of earnings quality in increasing stock price informational context on the basis of synchronous flexibility model. As the earnings quality is a multifaceted concept which can be measured by several criteria, in order to evaluate different aspects of earnings quality and reliability of the results, several indicators are concerned in this research including earnings sustainability, income smoothing, earning transparency and conservatism as earnings quality criteria. The data of this study are collected by employing a statistical sample of 103 companies listed on Tehran Stock Exchange during 2008 to 2018. For testing of research hypotheses, the comparative Multivariate regression and econometric models are used. The results indicated that smoothing of earning, conservatism and lack of earning transparency leave a significant effect on increasing stock price information content based on synchronous volatility model, so that increase in conservatism and earning smoothing add to stock price information content and the reduction of earning transparency of financial reporting decreases it. Moreover, earnings sustainability does not leave a significant effect on stock price information content. These results confirm that higher quality accounting information, measured in this study on the basis of earnings content, reduces the risk and cost of obtaining information. As a result, the stock price information content, which is measured by synchronous flexibility model in this study, will increase.

Keywords

References

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Budget and Finance Strategic Research
Volume 1, Issue 4 - Serial Number 4
Winter Quarterly
March 2021
Pages 69-110

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History

  • Receive Date: 01 March 2021
  • Revise Date: 08 April 2021
  • Accept Date: 10 April 2021

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