Asian Journal of Research in Banking and Finance
Year : 2014, Volume : 4, Issue : 9
First page : ( 28) Last page : ( 43)
Online ISSN : 2249-7323.
Article DOI : 10.5958/2249-7323.2014.00944.4

The effect of stability and predictability of profit on stock market value

Hosseinimasoum Mohammadreza, Esfidani Ghader, Hosseinimasoum Neda

Department of Accounting, Bojnourd Branch, Islamic Azad University, Bojnourd, Iran

Online published on 23 September, 2014.

Abstract

The results of researches confirm that the reported "net income" contain information which is related to company's stock price valuation and economic performance of firms. But since there are income measurement process failure such as conflicts of interest between managers and shareholders it is needed to estimate and predict the future and taking advantages of several methods of accounting and other factors cause to increase the information content of profit and optimal use of this element in decision models will be threatened. One of the ways to deal with failure is disclosure and reporting of information to facilitate assess the “quality of earnings”. In this paper after presenting the components of profit, the impact of stable and predictable profit on the market value of common stock have been investigated using multivariate regression and time series models. With assessment of characteristics of earning quality using both earnings stability criterion and predictable income was clear that there is a direct relationship between earnings quality and stock market value. Whatever the quality of profit is high, stock market value will increase.

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Keywords

Stable earnings, predictable earnings, the stock market value.

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