ARTICLE INFO. Keywords: Market risk Size risk Book risk to market Earnings risk Earnings quality shareholders equity cost. 1.

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1 Advances in Mahemaical Finance &Applicaions, () 206,33-42 Published by IA Universiy of Arak, Iran Homepage: Sudying he effecs of relaed facors o risk on shareholders equiy cos by considering earnings qualiy for acceped companies in Tehran Sock Exchange Masome Mami a, Rahmaollah Mohammadipour a,* a Deparmen of Accouning, Ilam Branch, Islamic Azad Universiy, Ilam, Iran. ARTICLE INFO Aricle hisory: Received June 206 Acceped 09 Sepember 206 Keywords: Marke risk Size risk Book risk o marke Earnings risk Earnings qualiy shareholders equiy cos ABSTRACT This sudy examined he effecs of relaed facors o risk on shareholders equiy cos by considering earnings qualiy for acceped companies in Tehran Sock Exchange. This survey invesigaes a populaion of 76 companies during he ime period of The resuls show ha under high earnings qualiy, he marke risk facor, he book risk o marke facor, and he size risk facor have posiive effecs, and he profi risk facor has negaive effecs on shareholders equiy cos.. Inroducion Considering invesor o relaionship and reurn on invesmen is effecive facors in selecion and implemenaion of invesmen. The role of risk and reurn on invesmen is as well as role of supply and demand in economy for commodiy pricing, according o heoreical perspecive, risk means poenial measurable loss of invesmen. Unil 950s, risk was considered a qualiaive facor, unil wih effors of Harry Markowiz, risk was quanifiable and sandard deviaion of invesmen plans cash flow was inroduced as risk assessmen equiniy in differen economic, social and poliical condiions. Effecs of risk invesmen o oal risk invesmen was required covariance and correlaion coefficien calculaion ha was difficul and ime consuming calculaions. Laer, William Sharp released o invesmen word a simple and applied model by coefficien deerminaion as risk facor []. Using he curren heories and mehods and heorizing are required o informaion special produce informaion in accouning sysem ha in new capial marke of our counry is obained difficuly. For his reason, recognize he relaionship beween marke risk and accouning informaion have specific imporance. Oher sudies, is showing relaionship beween accouning raios and marke risk and is suggesed ha accouning raios can used in β securiies forecas Ahmadpur & Jamkarani [2]. * Corresponding auhor. Tel.: address: rm.accouning2@yahoo.com 206. All righs reserved. Hosing by IA Universiy of Arak Press.

2 Sudying he effecs of relaed facors o risk on shareholders This paper is looking for answer his quesion ha are effecs of relaed facors o risk on shareholders equiy cos wih considering earnings qualiy in acceped companies in Tehran sock exchange effecive or no? 2. Lieraure and sudy s background 2.. Theoreical bases Compeiions in business environmen are required business companies abiliy for opimal aracing of limied environmenal sources including cusomer, qualified human resources and financial resources. Opimal resources using is second facor ha has effecive role in compeiive advanage for companies. In his regard, despie all planning and opinion accuracy by expers in his filed, bu sill here are facors ou of company s conrol ha can make increase companies accomplishmen possibiliy o each operaional goals. In his regard, company s accomplishmen possibiliy o predeermined goals is released as risk. Risk is including possible change in anicipaed benefis and advanages for a decision, as even or a sae in fuure [0]. Shareholders equiy cos is one of effecive variables in decision making models and is inroduced as expeced reurn of shareholders. On he oher hand, shareholders equiy cos is said o minimum rae of reurn ha a company should obained ha supplied invesors reurns in company. Acually if invesmen reurn raio of one company is more, shareholder's wealh will increase. So if companies experimen lower shareholder's equiy cos, can accep more invesmen projecs. According o concepual framework, accouning goal, financial reporing as such as provided informaion lead o decision by users. Provided informaion have feaures ha menioned as qualiaive characerisic; qualiaive characerisic was presened by financial accouning sandard board (FASB) for he firs ime, afer ha accouning purposes was elaboraed in saemen financial accouning concepual number 2 (2 SFAC), saemen financial accouning concepual number 2 is a bridge beween SFAC number relaed o financial characerisic on one side and oher saemen financial accouning concepual framework on he oher side. Tow primarily qualiaive characerisic ha help o make beer and higher qualiy informaion due o decision making is including relevance, reliabiliy and profi as one of imporan informaion of financial reporing. The profi has higher qualiy ha has high reliabiliy and relevance and if his feaure will increase, decision making will be more useful. Due o relaed limiaions o informaion cos and is imporance, can be said ha if relevance and reliabiliy of informaion will increase, informaion for users will be more useful [4] Sudy s background Ming FengHsu, is sudying 4 risk facors relaed o shareholders equiy cos under asymmery informaion. Resuls show ha 4 risk facors have significan effecs on shareholders equiy cos under earnings qualiy. Ming Feng Hsu & Zhang Yu is sudying earnings qualiy and liquidiy in shareholders equiy cos. Resuls show ha discreionary accruals and liquidiy reduce shareholders equiy cos. Franco measured effecs of risk managemen on value creaion for company. Resuls show posiive and significan effecs of risk managemen in company s value creaion. Dasgire al [7], are sudying relaionship beween earnings qualiy and sock reurn. Resuls of sudying 85 companies show ha here is posiive and significan relaionship beween earnings qualiy and sock reurn. BaniMahd [36] Vol., Issue, (206) Advances in mahemaical finance and applicaions

3 M. Mam R. Mohammadipour e al.[3], is sudying producs compeiive abiliy and shareholders equiy cos. This sudy s resuls shows ha compeiive abiliy and shareholders equiy cos have adverse and significan relaionship wih each oher. On he oher hand, increasing compeiive abiliy, reduce shareholders equiy cos. Rezazade & Zaheri [9], are sudying discreionary accruals, sysemaic risk and financial disabiliy. Survey s findings show ha discreionary accruals have relaionship wih sysemaic risk and financial disabiliy level. 3. Surveys hypohesis Firs hypohesis: marke risk facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Second hypohesis: size risk facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Third hypohesis: book risk o marke facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Fourh hypohesis: profi risk facor has negaive effec on shareholder's equiy cos, under high earnings qualiy and adverse. 4. Surveys mehod Surveys mehod is including se of regulaion, ools and valid and saisical ways (reliable) for facs sudying, unknown discovery and obaining o problems soluions [6]. This survey is correlaion in erms of mehod and naure, in erms of relaionship beween variable is combined and in erms of daa ype is quaniaive, in erms of implemenaion is descripive survey and in erms of ime is rerospecive and in erms of surveys goal is upper applied survey. 4.. Saisical populaion and sample Mos researchers believe ha populaion is include all real members wih his impose ha we are ineresed o generalize findings o hem [8]. This surveys populaion is including all acceped companies in Tehran sock exchange. The reason for choosing hese companies as Saisical populaion is ease access o audied financial saemens. Selecing companies crieria has been done as sep wih eliminaion and sysemaic eliminaion. Thus sudy s populaion is including all acceped companies in Tehran sock exchange during 2009 o 204, wih regarding o following condiions: The company s financial year ending o March (Esfand) each year (in erms of increase comparabiliy); Company do no change financial year during 2009 o 204; Company do no par of banks and financial insiues (invesmen companies, financial inermediary node, leasing companies); Companies ha does no rading inerval more han 6 monhs; Sudy sample is 76 companies, due o above limiaions, by sysemaic eliminaion. Vol., Issue, (206) Advances in mahemaical finance and applicaions [37]

4 Sudying he effecs of relaed facors o risk on shareholders 4.2.Operaional definiions Independence variables Marke risk measuring index For measuring marke risk use duraion analysis. Duraion of saving bond (or any oher securiies wih fixed income) is equal o cash flows weigh mean. In hear, weigh is ime inerval o mauriy securiies. Size risk measuring index This index includes dispersion amoun in earned reurn of 2 monhs ha measure by sandard deviaion of 2 monhs' sock. Book risk o marke measuring index This risk calculaes by shareholders equiy cos book value division o marke value of shareholders equiy cos. Earning risk measuring index For measuring earning risk uses sysemaic risk in his sudy. Sysemaic risk (B): cov( R, R i ( ).. i m i m im 2 2 m) ( m) i. m im Tha (cov) RI,Rm include covariance beween sock reurn and porfolio marke reurn, i means: () COV( R, R i m [( R ) i R i )( R m n R m )] (2) 2 and ( m ) variance of porfolio marke reurn, m. Correlaion coefficien is beween i sock and porfolio marke reurn, i sandard deviaion of i sock reurn and m sandard deviaion of porfolio marke reurn [5] Dependen variable Due o measuring shareholders equiy cos in his sudy has been used Gordon valuaion model as follows: K e D P 0 g (3) K e: expeced shareholders reurn D : expeced dividend of fuure year P 0: sock price in beginning of year g: expeced growh rae Moderaing variable: earnings qualiy For calculaing earnings qualiy in his sudy is used discreionary accruals (Jones adjused model) ha is as follows: [38] Vol., Issue, (206) Advances in mahemaical finance and applicaions

5 M. Mam R. Mohammadipour In his model ha is rying o separae he discreionary accruals and nondiscreionary accruals has been ried evaluae economic condiions of business uni effecs on accruals for a specific ime period ha known as even period wih sell, esae, machinery and equipmen variables, as follows: TA A ( REV ) ( PPE ) ( ) i i i 2 3 i i Ai Ai Ai (4) In his relaionship TA represens oal accruals, A is oal asses, REVΔ is sale income change and PPE is machinery and equipmen. Nondiscreionary accruals calculae for evoluion period as follows: NDA i ( A i REVi REC ) 2( A i i PPE ) 3( A i i ) (5) RECΔ is changes in demands. In he las sep, discreionary accruals calculae as follows: (6) DA is discreionary accruals. 5. Sudy s findings 5. Volailiy es Due o significan effecs of variance volailiy on esimaion, sandard deviaion and saisical inference, is required o realized exisence or absence volailiy before addressing any esimaion. In his research Likelihood Raio es used for esing variance equaliy in panel daa. Table : variance volailiy es resuls Saics Likelihood Raio Saics amoun 3/7 Significance level H 0 hypohesis is ha here is no variance volailiy. Due o significance level (Prob> 0.05) H 0 hypohesis is acceped a H hypohesis is rejeced, in resul our regression in 0.05% significance level is lack of variance volailiy. 5.2 Chow es Chow es done for deermining fixed effecs model using in-reurn of all daa inegraion. Chow es coefficien o sum of squares error of binding and nonbinding model, is follows: Vol., Issue, (206) Advances in mahemaical finance and applicaions [39]

6 Sudying he effecs of relaed facors o risk on shareholders ( RRSS URSS) /( N ) Chow ( URSS) /( NT N NK) (7) This coefficien has F disribuion wih freedom degree of N-andNT-N-K. If saisical value of calculaed binding F is less ha F value of able, in deermined significan level, H 0 hypohesis rejecs and here will be significan effecs for secions and fixed effecs model will be seleced. Oherwise, uses Pooled daa model. Table 2: Resuls of Chow es (binding F) Coefficien Fbinding Chi 2 Coefficien amoun 2/ / /000 0/000 Prob. Noiced resuls for presened model in his sudy shows ha boh F and Chi Coefficien are in 0.05% of significance level. So H 0 hypohesis isn acceped based on need o using Pooled model and model should esimae based on daa panel mehod. Husman Tes Resuls Husman es is used o deermine fixed and random effecs. H 0 hypohesis in Husman es means ha here is no relaionship beween disrupion relaed o inercep and explanaory variables and hey are independence. On he oher hand, if H 0 hypohesis is rejeced and oher hypohesis is acceped, we declare he fixed effecs compaibiliy and random effecs incompaibiliy and we should use fixed effecs mehod. Table 3: Resuls of Husman es Coefficien Husman Coefficien amoun 02/ Prob. 0/000 Noiced resuls shows ha Chi 2 Coefficien is significan in 0.05 probabiliy. Thus H 0 hypohesis abou need o using gradien effecs is no acceped and should esimae according o fixed effecs mehod. Sudy s hypohesis analyzing Firs hypohesis: marke risk facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Second hypohesis: size risk facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Third hypohesis: book risk o marke facor has posiive effec on shareholder's equiy cos, under high earnings qualiy and adverse. Fourh hypohesis: profi risk facor has negaive effec on shareholder's equiy cos, under high earnings qualiy and adverse. [40] Vol., Issue, (206) Advances in mahemaical finance and applicaions

7 M. Mam R. Mohammadipour AR MKT SMB HML EM 0 6 SMB HEM HML HEM 4 EM 8 MKT HEM 5 HEM, (8) Table 4: Esimaion model resuls Variables Esimaion coefficien Sandard error es coefficien es possibiliy C /0-4/ /0000 MKT / / 3/ /0009 SMB / /3069 5/ /0000 HML / 65253/2 2/ /0050 EM /3 309/6-3/ /0002 MKT*HEM -/94E- /08E-0-0/ /8575 SMB*HEM -0/ / / /0002 HML*HEM -0/ / / /0000 EMH*EM 0/ / / /6064 R 2 0/ Akaike crieria 29/6247 Adjused R 2 0/ Schwarz coefficien 30/44244 Fcoefficien 48/45667 Hannan Quinn crieria 29/94692 Fpossibiliy 0/ Dorbin Wason crieria / The resuls of esimaion show ha T es possibiliy for marke risk, size risk, book risk o marke and earning risk are smaller han 5%; so esimaion coefficien of above variable is significan saisically. I means ha above variables are imporan facors in shareholders equiy cos, hus all hypohesis are acceped wih 95% confidence. Posiive effec is acceped for firs, second and hird hypohesis due o posiive regression coefficien; bu in fourh hypohesis earning risk has negaive effec on shareholders equiy cos, under high earning qualiy. Negaive effec is acceped because of negaive regression coefficien. Adjused deerminaion coefficien shows models explanaory power ha i is able o explain 33.90% of shareholders equiy cos. F coefficien possibiliy shows ha all he model is significan saisically (because F possibiliy is less han 5%). Since Dorbin-Wason crieria is beween.5 and 2.5, so here is no any auocorrelaion in model. 6. Conclusion As he sudy s resuls shows some of risks aspecs have informaional conen and wih regarding o earnings qualiy ha has significan relaionship wih shareholders equiy cos, meanwhile some of oher feaures have no informaional conen and does no consiue as relaed informaion in invesmen decisions. Firs hypohesis ess resuls are consisen wih Ming FengHsu anddasgir& e al, bu is no consisen wih sudy of Feng Hsu & Zhang Yu. According o lieraure, in addiion o various aspecs of risk facor, anoher facor has effecs on shareholders equiy cos ha effecs of his Vol., Issue, (206) Advances in mahemaical finance and applicaions [4]

8 Sudying he effecs of relaed facors o risk on shareholders facor is considered as moderaing variable. The resuls of second, hird and fourh hypohesis is consisen wih Ming Feng Hsu. However, he general sudy s resuls show ha used independen and moderaing variable, is include all affecing facors on shareholders equiy cos. Presen sudy s resuls show ha here is possibiliy of using quaniaive mehods for earnings qualiy processing and preparing hem for decision making. Academic recogniion of earnings qualiy and shareholders equiy cos changes, is opporuniy o replace scienific analysis raher ha subjecive daa ha should no be ignored. Presen sudy s main obsacle ha can affeced resuls generalizaion of sudy, is ha daa are no adjused for inflaion. Some Suggesions for fuure surveys are as follows:. Sudying measuremen models evaluaion of shareholders equiy cos wih profi margin deviaion; 2. Opimize Markowiz risk managemen paerns and parameric VaR (value a risk) in Iran s capial marke; 3. Examinaion predicive value, cerified value crieria and specific selecion in earnings qualiy evaluaing; 4. Sudying marke risk radiional and modern mehods effecs on earning profi forecas. References [] IslamiBigdel Gh, Heiba F., Porfolio managemen by using index model, financial researches, governmenal and business managemen faculy of Tehran Universiy, 996, P [2] Ahmadpur, A, GholamiJamkaran R, Sudying relaionship beween accouning informaion and marke risk, social and human science journal of Shiraz Universiy,202, 22 (2), P [3] BaniMahd, B, YaghbNejad, A., Vahidi Kia, E., Producion compeiive power and shareholders equiy cos, financial accouning and audiing survey journal, 205, 9 (26), [4] Paroy, N, PoriaNasab, A., Inroducion on qualiaive feaures of accouning informaion, accouer journal, 200, 44. [5] Hejaz R, Comparison of relaionship beween added marke value and economic added value wih accouning crieria in Tehran sock exchange, 2007, P [6] Khak Gh,R, Research mehod wih an approach o disseraion wriing, Bazab Pub, 5 h ediion, [7] Dasgir, M, Gogerdchian, A. and Adamia, S., Relaionship of earnings qualiy and sock reurn, financial accouning and audiing surveys journal, 205, 9 (26), [8] Delavar, A, Theoreical and scienific bases in human a social scienis, Roshd Pub, [9] Rezazade, J., Zaher S., Discreionary accruals, sysemaic risk and company s financial disabiliy, Experimenal financial accouning research journal, 2 nd year, 202. [0] Mahmmod A, Comparison sudying of correlaion relaionship beween economic added value, risk and operaional cash flow in performance evaluaing, M.A. hesis, 2009, Yazd Universiy [42] Vol., Issue, (206) Advances in mahemaical finance and applicaions