*Department of Accounting, Qaemshahr Branch, Islamic Azad University, Qaemshahr, Iran
**Sama Technical and Vocational Training College, Islamic Azad University, Behbahan Branch, Behbahan, Iran
***Department of Management, Economics and Accounting, Payame Noor University, I.R.Iran
Online published on 5 July, 2014.
In financial and economic decision-making, stock return is an important criterion. This study tries to investigate the association of accrual and cash flow, components of earning in predicting stock return and determining the price of accepted firms in Tehran stock exchange. In order to achieve this goal, by using the filtering method, the information of 93 firms, during three years has been scrutinized. In this study E.P, D.P, BV. MV variables are used as control variables. For examination hypothesis are used simple and multiple regressions based on the panel data method. The initial results showed that, contrary to previous finding, aggregate accrual is a positive time series predictor of aggregate stock return, and cash flow is a negative predictor. This result entirely rejects the earning fixation hypothesis of Sloan (1996) which claims that accrual has a negative relation with stock return while cash flow has a positive relation with stock return. Other result showed that innovations in accrual are negatively contemporaneously correlated with stock return and innovation in cash flows are positively correlated with stock return. These findings indicate that changes in accruals and cash flows contain information about manage earning in response to market wide undervaluation.
Stock return, accrual, cash flow, fixation earning
