The relationship between pay policy dividends and earnings quality firms

Transcription

1 International Research Journal of Applied and Basic Sciences 2014 Available online at ISSN X / Vol, 8 (6): Science Explorer Publications The relationship between pay policy dividends and earnings quality firms Morteza Akbari 1, Daryosh Javid 2, Hosin Solimani 3 1. Department of Accounting, Malayer Branch, Islamic Azad University, Malayer Iran. 2. Department of Accounting, Malayer Branch, Islamic Azad University, Malayer Iran. 3. Department of Accounting, Malayer Branch, Islamic Azad University, Malayer Iran. Corresponding Author Akbari.morteza1358@gmail.com ABSTRACT: Accounting earnings and its associated components are of such information which is taken into account in decision-making by individuals. Since the calculation of profit associates with forecasts and estimates, the question arises that to what extent this figure can be effective in obtaining useful decisions. In general,given the importance of the quality of earnings and dividend payments on the decisions of users of financial information, In this research effort is a step towards solving the mystery of the relationship between earnings quality and dividend payments are taken. In this research, stable operating profit, return on equity, earnings quality were examined as indicators of operating performance. Accordingly, a main hypothesis and three secondary hypothesis was designed and tested. Instruments used to collect data mining. Information needed to calculate the return on equity of existing software and the Yearbook of the United Stock Exchange were extracted. Variables related information from the financial statements of the companies in the study were provided.according to the amount of Fisher test and the amount of significance which is more than 0.05, the model of the first hypothesis is significant. According to the results in the regression table of second hypothesis model and also according to the results of Pearson correlation coefficients, there is a significant relationship between stock returns and earnings quality at the significant level of INTRODUCTION Accounting is an information system. The information system as the most important subset of management information systems is responsible for converting financial data into financial information. Financial reports are of the most important accounting information system products which are provided for various groups of external users of financial information in the specific framework. External users are included relatively wide range of accounting information. From managers, owners, employees of business unit to actual and potential shareholders and investors, government, lenders, customers, vendors of goods and services and even competitors business unit, all are the typical users of accounting information system products. For many of these users, accounting information system products, limitation of resources and the necessity of its optimal allocation in order to assess the performance and make informed decisions are very important. Hence, it is important to evaluate the performance of economic units in order to optimally allocate the resources and track the determined targets. Today, performance evaluation is one of the most important financial issues of firms. To what extent the companies have tried to raise its shareholders' interests, what indicators are considered by banks and credit institutions in granting company's facilities, what dimensions are considered by company owners in the payment of bonuses to managers and finally, what points are considered by government authorities due to legal requirements in relation to companies can be appropriately responded by companies' performance assessment methods. Government's economic policies in the field of privatization of state enterprises in order to attract private sector investment and guide the investments in the way to development and prosperity of country's economy has led a large number of people to turn to the stock market. Naturally, inventors will face a high risk without the knowledge of the financial and functional position of companies and assessing their financial statements. Undoubtedly, any information that can properly show the trend of movement and life of a firm to external users will also have a serious role in a clarifying the path for the firm management and helping managers make the right and rationale decision. The necessity of doing those empirical researches that are done in order to disclosing the information load of accounting numbers in recent decades, today is determined more than ever and can be helpful to decision makers and investors in emerging market of Iran's investment which has enjoyed a certain boom in recent years. Shareholders, who are the most

2 important group of financial statement information users, seek their interests in earnings information. Accounting earnings is a sign that leads to the change of investors' beliefs and behavior. Earnings quality can affect investors' confidence to financial markets in financial reporting. Various methods of accounting, deficiencies in the estimates and forecasts, act of directors and effectiveness of benefit from reporting foundations and management discretion are of important factors in earnings quality. The statement of earnings quality refers to the directors' ability in using the optional items in the measurement and reporting of earnings. Optional items may include choosing among accounting principles or standards and the use of estimates and timing of transactions to identify unusual items in profits. Over the past three decades, the discussion of earnings quality has been of particular interest to researchers and it is tried to assess earnings quality and identify factors affecting it by finding a reasonable and credible way (Desai et al, 2009). Problem Statement Accounting earnings and its associated components are of such information which is taken into account in decision-making by individuals. Since the calculation of profit associates with forecasts and estimates, the question arises that to what extent this figure can be effective in obtaining useful decisions. The importance of this discussion is that the lack of adequate and accurate information and consequently making wrong decisions results in unfair sharing of resources. In some cases it is observed that company's management has reported inefficient earnings that in practice, due to the falsity of the paper profits, the company is not able to distribute it. So the company decided to distribute the share profits and it not only does not add to shareholder wealth, but the shareholders who receive cash benefit enjoy more capital increase than shareholders who receive share benefit, that the difference comes from how the benefit is divided. Among the factors that could affect the earnings quality we can refer to the managers' authority in using principles of realization and compliance and use of estimates and forecasts in recognizing and calculating the accounting profit. Sometimes the management of economic institution takes advantage of accounting choices to manipulate earnings and mislead users. In addition, managers may manipulate profit elements to better present institution's situation and so to minimize reported earnings quality, because those who rely on the benefits for their decisions, mistaken and also, financial analysts cannot predict correctly the future profitability of economic institution. Segal (1979) believes that profit figures should have honesty, reliability and functionality. Honesty means to be away from any pre judgment and planned manipulation to represent the economic institution conditions favorable and reliability also means that the figures of reported profits should properly evaluate the profitability power of company and by which the trend of future profitability can be expected. Profit, as one of the most commonly principles of decision making with specific and general acceptance indicates the actual performance of companies. But profit measurement is obtained from elements such as sales, revenue, cost and etc that the measurement process is full of assessments, estimates, thoughts of smoothing various methods and different judgments which results in creating a gap between actual profits and reported one. Therefore the criticism of users of such profits is reasonable and serious and it is critical to measure the true profitability and correct valuation of companies which is mainly related to reported profits in economic communities like Iran where are at the beginning of privatization process; because its unfairness leads to faulty transfer of public assets to the private sector, effect on the fledgling market of capital as it is called social assets, failure in global markets and confidence divestment of investors in the market and results in the inefficient mode of this economic aspect that undertakes an important role in free markets. Therefore the threats and uncertainties in reported profit should be removed and the way for investment should be paved by clarifying the available information and it is hoped that assessing the earnings quality and determining its relation with stock returns affect the transparency of capital market information, and help to optimize financial investment portfolios, and companies' valuation. The importance and necessity of research The decision made based on the awareness of the benefits of institution can is a long term impact, especially when there is consensus about the made judgment. Accurate measurement of net profit is important. Main elements of net profit have a more importance, because more and less of net profit is nothing except the relation between costs and revenues. But all of these items for accounting, which in principle is a particular type of computing services, mean that correct determination of profit is the central issue of accounting. Also according to the above, this hypothesis can be stated about the central purpose of accounting. The widespread need for credible results in the determination of net profit for the period turns the profit and loss statement into the most important form of financial statements of institution. If this theorem becomes reasonable statement, then it is possible that this hypothesis turns into an accounting principle, that in the case, the theorem can become a principle called the compliance principle of period to period. For all the users in each group, even for the creditors, until debtor's financial disability, what is critical is that ability or inability of the institute is in creating the net profit. So again, the central and superior importance of profit is more highlighted than other factors. For this reason it is worthy that the concept of institution's profit to be partly seen in more detail. 668

3 Different factors affect stock prices and consequently, stock returns. On the one hand, the importance of these factors in helping investors make better decisions, on the other hand, undeniable role of Stock Exchange in attracting investors' trust, makes the investigation of mentioned factor necessary in Iranian capital market. Research purposes Main objective: The objective of this study is that is a relationship between earnings of share and earnings quality of manufacturing companies of the member of Tehran stock exchange or not? Secondary objectives: Is there a relationship between earnings division and stability of company's revenues? Is there a relationship between the policy of dividend payment and earnings quality? Research hypotheses Main hypothesis: is there a relationship between earnings quality and stock returns earnings in manufacturing companies of the member of Tehran stock exchange? Secondary hypothesis 1: Is there a relationship between earnings division and stability of company's revenues? Secondary hypothesis 2: Is there a relationship between the policy of dividend payment and earnings quality? DATA COLLECTION METHOD The method of collecting information is document searching. Information needed for calculating the stock returns was extracted from available software and yearbooks of Stock Exchange organization. Information related to the independent variables was provided from financial statements of studied companies. In this regard, databases of Pars Portfolio software and official website of Tehran Stock Exchange ( were used. T Excel and Eviews software was used in order to calculations and statistical analysis. Data Description In this part, initially statistical parameters (i.e., mean, median, standard deviation) of each of the variables are presented and interpreted. Table 1. Statistical characteristics of information obtained from studied variables. Variable Dividend Stable profit Stock returns Earnings Operational Dividends policy Quality Performance Average Standard error of the mean Median Standard deviation Variance Curvature Standard error of the curvature Elongation Standard error of the strain Domain Minimum Maximum Analysis analysis of hypotheses Examine the assumptions of regression analysis Check the assumptions of regression testing include Test of independence of errors 669

4 Check the normality of errors Test line First research hypothesis Is there a relationship between sustained revenue and earnings quality. To justify the above hypothesis, earnings quality and stability of revenue were tested. The results of the relationship are summarized in the following table. Model estimated standard deviation Table 2. Results of Watson Durban statics Adjusted correlation coefficients The coefficient of determination The correlation coefficient a Watson statistic camera As the above table shows, calculated statistics is which is at the distance of 1.5 and 2.5. The assumption of independence between errors is accepted and regression can be accepted. Figure1. study of error distribution normality According to the diagram (1) the rest of intervals should be 45 degrees function in p-p Diagram, the assumption of error normality is accepted in this diagram. Figure2. study of constant variance and being zero of mathematical hope of errors Given that the half of data are more than zero and that of the other is below zero the in residuals diagram, the assumptions of constant variance and being zero of mathematical hope of errors are confirmed. 670

5 Given that the amount of Fisher test is which is more than α = 0.05, the model of first hypothesis is significant. The model of first hypothesis is significant at the level of According to the results in the table (4) of regression model and also according to the results of Pearson correlation coefficients (Table 6), there is a correlation between two variables, but is not statistically significant. Therefore reject the null hypothesis is rejected. The second hypothesis of research There is a relationship between stock returns and earnings quality. To justify the above hypothesis, the quality of stock returns and earnings quality were tested. The results of the relationship are summarized in the following table. Model estimated standard deviation Table 3. Results of Watson Durban statics Adjusted correlation coefficients The coefficient of determination The correlation coefficient Watson statistic camera As the above table shows, calculated statistics is which is at the distance of 1.5 and 2.5. The assumption of independence between errors is accepted and regression can be accepted. Figure3. Histogram related to the second hypothesis of research According to the diagram (1) the rest of intervals should be 45 degrees function in p-p Diagram, the assumption of error normality is accepted in this diagram. Residual is the observed difference and predicted amounts of dependent variable. Histogram form should approximately be normal and the hypothesis of error normality is confirmed in this model. Residuals are 45 degree function in p-p and the assumption of error normality is accepted. Figure4. residuals of second hypothesis model 671

6 Study of constant variance and being zero of mathematical hope Given that the half of data are more than zero and that of the other is below zero in residuals diagram, the assumptions of constant variance and being zero of mathematical hope of errors are confirmed. Analysis of variance Figure5. The distribution of second hypothesis model residuals Table4. study of second hypothesis model significance Model Square Degrees of freedom Mean square F ratio significance level Regression Residual Total According to the amount of Fisher test 6.94 and the amount of significance which is more than 0.05, the model of hypothesis is significant. Model Table 5. The estimated coefficients of the variables of the second hypothesis Not the standard significance level of A significance level T calculated significance beta and standard error of standardized beta level B Std. Error Beta The remaining Stable profit Pearson correlation coefficient Operational Performance Earnings Quality Table 6. parameters of descriptive statistics related to the second hypothesis Mean Standard deviation Number Earnings Quality Stock returns

7 Correlation coefficient Table 9. to calculate the correlation coefficient of the second research hypothesis Earnings Quality Stock returns Earnings Quality Pearson's correlation coefficient ** Confidence level, twotailed.000 Number According to the results in regression table of second hypothesis model, and also according to the results of Pearson correlation coefficients, there is a significant relationship between stock returns and earnings quality at the significant level of RESULTS OF TESTING HYPOTHESES RESULTS OF TESTING THE FIRST HYPOTHESIS "There is a relationship between revenue stability and earnings quality" Given that the half of data are more than zero and that of the other is below zero in residuals diagram, the assumptions of constant variance and being zero of mathematical hope of errors are confirmed. According to the amount of Fisher test and the amount of significance which is more than 0.05, the model of the first hypothesis is significant. The model of the first hypothesis is significant at the level of According to the results in the table (4) of regression model and also according to the results of Pearson correlation coefficients ( Table 6), there is a correlation between two variables, but is not statistically significant. Therefore reject the null hypothesis is rejected. RESULTS OF TESTING SECOND HYPOTHESIS "There is a relationship between stock returns and earnings quality" To justify the above hypothesis, the quality of stock returns is tested. The results are as follows. Given that the half of data are more than zero and that of the other is below zero in residuals diagram, the assumptions of constant variance and being zero of mathematical hope of errors are confirmed. According to the amount of Fisher test and the amount of significance which is more than 0.05, the model of the first hypothesis is significant. According to the results in the regression table of second hypothesis model and also according to the results of Pearson correlation coefficients, there is a significant relationship between stock returns and earnings quality at the significant level of ACKNOWLEDGEMENTS This article is taken from the master's thesis, University of Morteza Akbari is malayer REFERENCES Ahmadpor A, Ahmadi A Using the characteristics of financial information in assessing the quality of earnings. Quarterly Reviews of Accounting and Auditing, 15 (52): pp. 16 Amiri N Estimates of labor demand in large industrial establishments. The letter MA Economics, University of Isfahan Babajani J Governmental accounting and financial control., Second edition, Tehran: Allameh Tabatabai University Press Babajani J. assess the accountability of governmental accounting system, financial reporter, Ph.D. Dissertation, University of Allameh Tabatabai Conceptual Statement of accounting standards board, Number One financial reporter on the GASB, United States Bahramfar T.2005.The relationship between earnings per share, dividends and investments in listed companies in Tehran Stock Exchange. Journal of Accounting and Auditing Reviews 11 (36): pages Khajavi Sh Nazemi A "Relationship between quality of earnings and stock returns with an emphasis on enhancing the role of accruals in Exchange listed companies", Accounting and Auditing Review, No. 40, pp Mojtahedzade V The quality of the relationship between profits and dividends of listed companies in Tehran Stock Exchange. Journal of Accounting and Auditing Reviews 16 (56): Noravesh E, Majidi R "The relationship between earnings quality and the cost of capital of listed companies in Tehran Stock Exchange", Accounting, Electrical, Number

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