The Survey of the Relationship between Management Expected Profits and Disclosure Quality Associated with Market Surprise

Journal Name:

Publication Year:

Abstract (2. Language): 
In the present study, we deal with the survey of the relationship between the management forecasted profits and disclosure quality with the market surprise in Tehran’s securities market. Since managers, analysts and investors pay a greater attention to the companies’ reported profit in a way that they use it to evaluate the company’s performance and also because the decision-making for purchasing, maintain, or the sale of the stock shares is of a great importance for the investors, and from among other evidences and information, the capability to forecast the stock return rate has a greater influence on such decision-making, the aim of the present study is the survey of the relationship between the management forecasted profits and the disclosure quality with market surprise in the companies accepted in Tehran’s Securities Exchange. To reach the aforementioned objective three hypotheses are being proposed in which it has been dealt with the profit forecast accuracy, getting surprised with the management announced profit and systematic risk with stock price response. To test the study hypotheses, the data from 116 companies accepted in Tehran’s Securities Exchange was selected based on the goal-oriented systematic sampling method and the data from the time span from 2001 to 2011 was used to statistically test the hypotheses in the form of multiple-regression and the data panel was used in two softwares, namely SPSS17 and Eviews7. The obtained results are suggestive of a significant and reverse relationship between the profit forecast accuracy and the stock price response and there is a direct relationship between getting surprised from the management announced profit and the systematic risk with stock price response.



[1] J. Ng, I. Tuna, R. Verdi, (2012), “Management Forecasts, Disclosure Quality, and Market Efficiency,” The Wharton School
University of Pennsylvania 1303 Steinberg Hall-Dietrich Hall.
[2] R. J. Bloomfield, R. Libby, and M. W. Nelson, (2003), “Do Investors Over relies on Old Elements of the Earnings Time
Series?”Contemporary Accounting Research 20 (1), (spring), pp. 1-31.
[3] R. J. best, (2002), “Prior information and the market reaction to dividend changes”, Review of Quantitative Finance and
Accounting, pp. 361–376.
[4] D.W. Collins and S.P. Kothari, (1989), “An Analysis of Inter temporal and Cross-sectional Determinants of Earnings
Response Coefficients”, Journal of Accounting and Economics 18, 49.
[5] W. Xie, (2008), “A New Measure of Analyst Earnings Forecast Dispersion”, Working Paper, University of New Hampshire.
[6] W. Xie , (2009), “Analyst Earning Forecast Accuracy”: A Second Look , University of New Hampshire.
[7] R. Brid, (2001), “The prediction Earnings Movements Using Accounting Data”: An Update and Extension of Ou And
Penman, Journal of Asset Management, 2, (February).
[8] W.H. Beaver, R. Clarke, and W. Wright, (1979), “The Association between Unsystematic Security Returns and the
Magnitude of the Earnings Forecast Error,” Journal of Accounting Research (Autumn 1979), pp. 316-340
[9] B. B. Ajinkya and M. J. Gift, (1984), “Corporate managers’ earnings forecasts and symmetrical adjustments of market
expectations,” Journal of Accounting Research 22 (2), pp. 425-444.
[10] G. Waymire, (1984), “Additional evidence on the information content of management earnings forecast” Journal of
Accounting Research 22 (2), pp. 703-718.
[11] R. Jennings, (1987), “Unsystematic security price movements, management earnings forecasts, and revisions in
consensus analyst earnings forecasts,” Journal of Accounting Research 25 (1), pp. 90-110.
[12] J. L. Rogers and P. C. Stocken, (2005), “Credibility of management forecasts,” The Accounting Review 80 (4), pp. 1233-
[13] A. Brav, and J. B. Heaton, (2002), “Competing theories of financial anomalies,” The Review of Financial Studies 15 (2),
pp. 575- 606.
[14] E. Bartov, S. Radhakrishnan, and I. Krinsky, (2000), “Investor sophistication and patterns in stock returns after earnings
announcements,” The Accounting Review 75, pp. 43-63.
[15] J. Rogers, (2006), “Disclosure quality and management trading incentives,” University of Chicago working paper.
[16] C. Lee, (2001), “Market efficiency and accounting research: a discussion of ‘capital market research in accounting’ by
S.P. Kothari,” Journal of Accounting and Economics 31 (1-3), pp. 233-253.
[17] P. A. Williams, (1996), “The relation between a prior earnings forecast by management and analyst response to a
current management forecast,” The Accounting Review 71 (1), pp. 103-113.

Thank you for copying data from http://www.arastirmax.com