Accruals, Cash Flow, and Operating Profitability in the Cross Section of Stock Returns; Evidence from Tehran Stock Exchange (TSE)

• Main Authors: Mohammad Osoolian, Seyed Jalal Sadeghi Sharif, MohammadAmin Khalili
• Format: Article
• Language: fas
• Published: University of Tehran 2018-02-01
• Series: بررسی‌های حسابداری و حسابرسی
• Subjects: Accrual anomaly; Accruals; Cash-based operating profitability; Operating profitability; Stock Returns
• Online Access: https://acctgrev.ut.ac.ir/article_65133_6688e3a27ddff879dd1cc388b097b8e2.pdf
• ISSN: 2645-8020; 2645-8039

Accruals are the non-cash component of earnings. Cash-based operating profitability is a measure that excludes accruals from the operating profitability. We used this measure to predict stock returns. With a sample of 164 stocks from the Tehran Stock Exchange (TSE) over the period of 2006 to 2015. We observed the relations between accruals, operatingprofitability and cash-based operating profitability in the cross section of stock returns and found that cash-based operating profitability is a better measure compared to accruals and operating profitability in predicting stock returns. We also performed portfolio sorts and priced accrual-size portfolios using Fama and French three-factor model augmented with accruals, operating profitability and cash-based operating profitability. It turned out that the three factor model which was augmented with cash-based operating profitability factor outperformed other augmented models for pricing portfolios sorted by accruals-size according to well-known performance measurement tests such as GRS.