ACTUAL MANAGEMENT OF PROFIT, VALUE, AND COST OF CAPITAL OF THE COMPANY

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. ACTUAL MANAGEMENT OF PROFIT, VALUE, AND COST OF CAPITAL OF THE COMPANY * Vahideh Fatourehchi, Hossein Parham 2 and Elshad Yusifov 3 Department of Management Masters in Aras Tehran Campus University 2 Department of Management Public Economics, Azerbaijan University of Architecture and Construction 3 Department of Services Sector and Management, Azerbaijan University of Architecture and Construction *Author for Correspondence ABSTRACT The ability to profit in the current and future periods reflect the performance of companies, is a major factor in determining the intrinsic value of the company. The purpose of this study is to determine the relation between real profit management and cost of capital of the company. We've developed a hypothesis of the research, applied research and scientific purposes, to find a logical answer to the above question. Then, to test the hypothesis, we attempted to determine the sample of the study population, ie companies listed on the Stock Exchange, in the period of 5 years, according to financial statements for the years 2009 to 203. After obtaining sample regions, and collecting data, we calculate the variables tested, the software Excel, and finally, we analyze the data and test the hypotheses, the Pearson correlation and multiple regressions, using SPSS software. Earnings management is based on actual activity, the ability to manipulate, may affect the cost of capital. It was expected that, unusually high operating cash flow, cause, increase the cost of capital, and consequently, the reaction of the market. Real activities manipulation, reduces the quality of reported earnings, and leads to increased information asymmetry between managers and investors, and leads to the risk and therefore the cost of capital increases. INTRODUCTION Schifer (989), defines, profitability management, through a purposeful intervention in the external financial reporting process, with the intention of personal gain. The views Jines (99) and Hilli (985), companies have used the allocation of future receipts and payments, the current period, profitability management, and some studies have linked the quality profitability, the level of earnings management. The vision Securities and Exchange Commission, earnings management, reporting in financial markets threaten, intimidate earnings quality. For Litti (998), former chairman of the commission, the director of the profit is reported, with profit management, rather than actual profit. The Commission shall classify the characteristics of companies of various activities, affecting the profit, and for them, the following may occur, in the Earnings Management: A. Excessive bearing the cost, in time, such cases have not occurred; B. Unnecessary resources; C. The concept of abuse; D. Accounting for mergers and acquisitions (inadequate allocation of purchase price to goodwill, for direct removal) E. Not attained the realization of income (revenue record, before having the ability to detect) Tian (2007), examined the impact of earnings management on the usefulness of earnings, the valuation of companies as profits, is one of the most important inputs in models of accounting, the valuation of companies. The ability to profit in the current and future periods reflect the performance of companies, is a major factor in determining the intrinsic value of the company. The results show that earnings management has a deleterious impact on utility profit, the valuation of the company, because it reduces the information content of earnings. Jong et al., (203), who studied the effect of real earnings management, capital expenditure, in the period 2006 to 20, the Chinese company in 5046, the results of this study show that real earnings management is positive the cost of capital. Copyright 204 Centre for Info Bio Technology (CIBTech) 880

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Valizadeh (2007), in a study investigates the effect of real earnings management, future operating performance of companies. The results showed that there is no real significant relationship between future operating performance, and profit management, activity based. The main objective of this study is to investigate the relationship between the actual profit management, and cost of capital, the firms listed in Tehran Stock Exchange. Variables and How to Measure Them General model of the research, provided: COE = α + β (REM) + β 2 () + β 3 (BM) + β 4 () + є i Independent variables. Actual Profit Management (REM) Schifer (989), in his study, he said, profit management, and would be the actual activities. This type of earnings management is done through changes in operational activities, with the intention of misleading the stakeholders. Real activities manipulation, impact, cash flows, and in some cases, it can affect the accruals. The main difference between accruals management and real activities manipulation is the timing of earnings management. Compared to manage accruals, any manipulation, the real work needs to happen in the period year. Real activities manipulation occurs when forecasting managers, suggests that profits will fail in fulfilling their intended purposes, unless, they are things, which are derived from ordinary way, or when some other factors (strict accounting standards) are met, accrual management, with limitations. Another advantage of the actual activities, in order to manipulate earnings, is that auditors and regulators, fewer realize such behavior. Among other differences, the two forms of earnings management can be attributed to the fact that accruals management in place, it is relatively clear, but actual profit management, real activities manipulation, not detectable, easily (Yu, 2008). Measures of real activities manipulation, measured in this study, the pattern Chaudhary (2006) and Zaroin (200).. Measures of Real Activities Manipulation In this paper, following the manipulation of real activities conducted are: Manipulation of the sale is measurement level of each type of abnormal real activities manipulation, as the estimate of the remaining (residual profile). AZ. Abnormal Cash Flow (ABCFO) Abnormal Cash Flow (manipulation of sales), calculated by the following formula: Normal operating cash flow operating cash flow real = Abnormal Cash Flow (manipulation of sales) Data, the actual variable operating cash flows, the statement of cash flows, are derived. Normal operating cash flow of the company, calculated by the following equation: CFOit: operating cash flow in the year At: Asset years ago Salesit: year sales ΔSalesit: Changes sale It should be noted that data on the variables of operating cash flows, the statement of cash flows, assets in the balance sheet, income statement, and sales, are derived. Roy Chodharry (2006) defines manipulation of sales, as efforts by management to increase sales temporarily, during the year, which can be achieved by offering a discount on the price, and easier credit conditions, and lower those incoming cash flows, for sale. Dependent Variables. Cost of Capital (COC) The cost of capital is the minimum rate of return, which must be obtained by the Company, in order to maintain the company's market value, as well as the consent of the investors. In other words, the cost of capital is the minimum rate of return expected from the investment. To determine the cost of capital of the company, it is essential to first, each component costs of capital are calculated independently, and the Copyright 204 Centre for Info Bio Technology (CIBTech) 88

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. weighted average cost of capital (WACC), obtained on the basis of their overall capital structure. To calculate the typical cost of capital, in this study, we use the model of Gordon, which is obtained through the following formula: Ke: cost of equity DPS: Cash profit paid per share P0: The price per share at beginning of year g: the growth rate of dividends ROE: Return on equity EPS: Earnings per share Data on the variables of price per share, dividends on stock sites, and paid cash dividends, return on equity, and earnings per share, are derived from the financial ratios. To calculate the cost of debt should be divided, financial companies, up from a profit and loss on debt, the interest rate is obtained, then, we must multiply the rate obtained on the (t ) is (the tax rate, 22.5%) to the cost of corporate debt, obtain, and the calculation of the weighted average cost of capital, we divide the total debt over total assets, the weight of debt, the company's assets, identify, and finally, for insertion in the formula, the resulting weighted average cost of capital, we multiply the cost of debt. Kd = Km ( t) Kd: cost of debt, aftertax firm i, in year t Kd: Cost of debt before tax, based on an annual rate t: tax rate WACC = (We Ke) + (Wd Kd) WACC: Cost of Capital We: weighted cost of common stock in the capital structure of the company Ke: cost of equity Wd: the weight of the cost of debt in the capital structure of the company Kd: cost of debt, after corporate tax Control Variables Researcher, will always determine the relationship between two variables, or the impact of the independent variable on the dependent variable, the dependent variable, in addition to the independent variable, often influenced by the many factors or variables, and in fact, the effect of variable independent, that is, only part of it. Thus, if a researcher wants to compare the changes in the dependent variable, the independent variable must carefully identify other variables, and control them, so that the effects are not confounded with the effect of changing independent. Variables, their effects can be removed by a researcher, called the control variable. In one study, the effects of all variables are considered, researchers, neutralizes the effects of some variables, using statistical controls, or controls an investigation.. Return on Asset () Return on asset, indicating the ability of the business, application resources. Return on assets, is the ultimate criteria for evaluation of the adequacy and effectiveness of management in business administration. In this study, return on assets, calculated on the basis of residual rights theory, by the following equation: Net profit after tax data is extracted in the form of income, and assets, the balance sheet is extracted. 2. The Book Value to Market Value of Equity (BM) Book value to market value of equity, calculated by the following equation: Copyright 204 Centre for Info Bio Technology (CIBTech) 882

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Market value of equity, calculated by the following equation: Market value of equity = End of period end share price number of shares 3. Financial leverage () Financial leverage, in this study, obtained by the following equation: Assets and liabilities related to variable data is extracted, in the balance sheet. Summary of the variables used in this study is in Table (): Sample Survey The study sample consisted of the companies listed on the Stock Exchange Select companies in the sample, through systematic elimination of sampling, the number of companies surveyed are considered, 97 companies, the study sample. Data In this study, data collection was done in two stages. Firstly, to develop theoretical foundations and related research, we will use the library method, and secondly, the financial statements, information provided to the SEC, and other relevant sources of information, will be used to collect desired data, and web site management of research, development and Islamic studies from the Stock Exchange, as well as a variety of software, including software RahavardeNovin, will be used to get some variables. Statistical Description of Variables First, descriptive statistics of the survey data were calculated to analyze the data. The following graphs show, the descriptive statistics in various industries, and for each industry surveyed in the study, which represents the amount of descriptive parameters, for each variable, the individual, and includes information about the mean and median. The second category of information includes the parameters of the distribution, such as skewness and elongation, which states that, the distribution of data around the mean. Correlation Hypothesis of correlation of the variables in this study are as follows: Ho: ρ= 0 There is no significant correlation between the two variables. H: ρ 0 There is a significant correlation between the two variables. A correlation of test results, the variables are presented in the following figure: Table : Results of correlation analysis in various industries COC ABCFO COC Pearson 0.4 ABCFO Spearman 0.4 Spearman 0.398 0.86 Spearman 0.75 0.50 0.00 Spearman 0.472 0.95 0.398 0.90 0.307 0.30 0.80 0.49 0.00 0.308 0.088 0.049 0.473 0.9 0.30 0.089 0.049 Copyright 204 Centre for Info Bio Technology (CIBTech) 883

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. According to Table, as the level of significance () of variables abnormal operating cash flow and cost of capital, in various industries, is equal to (), and less than 5%, therefore, there is a significant relationship between abnormal operating cash flow and cost of capital in different industries. Table 2: Results of correlation analysis in industry COC ABCFO COC Pearson 0.082 0.23 0.058 0.685 0.437 0.269 0.564 ABCFO Spearman 0.08 0.002 0.23 0.034 0.436 0.987 0.038 0.726 Spearman 0.4 0.003 0.249 0.040 0.269 0.987 0.05 0.725 Spearman 0.060 0.23 0.250 0.302 0.564 0.038 0.05 0.004 Spearman 0.684 0.037 0.037 0.300 0.747 0.724 0.003 Due to the significance level () of variables abnormal operating cash flow and cost of capital in the industry, there is a significant relationship between abnormal operating cash flows, and capital expenditures in the automotive and components. Table 3: Correlation of test results, the drug industry COC ABCFO COC Pearson 0.208 0.043 ABCFO Spearman 0.208 0.043 Spearman 0.6 0.472 Spearman 0.42 0.33 0.68 0.200 Spearman 0.60 0.350 0.00 0.6 0.472 0.442 0.435 0.42 0.68 0.33 0.200 0.442 0.89 0.067 0.60 0.350 0.00 0.435 0.89 0.067 Hypothesis H, that there is a significant relationship between abnormal operating cash flows, and capital expenditures, are accepted at the 95 percent confidence level. To judge the Coalition for control variable, it should be noted, given that the level of significance () of variables,, the ratio of book value to market value of equity, and financial leverage, respectively, are equal to (, 0.68 and ); therefore, it can be stated that there is a significant relationship between and financial leverage, cost of capital, the pharmaceutical industry, and there is no significant relationship between the ratio of book value to market value of equity, the company's cost of capital in the pharmaceutical industry. Copyright 204 Centre for Info Bio Technology (CIBTech) 884

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Table 4: Correlation of test results, the chemical industry COC ABCFO COC Pearson 0.367 0.00 ABCFO Spearman 0.367 0.00 Spearman 0.689 0.705 Spearman 0.95 0.503 0.083 Spearman 0.65 0.687 0.689 0.705 0.47 0.782 0.95 0.083 0.503 0.47 0.359 0.00 0.65 0.687 0.782 0.359 0.00 There is a significant relationship between and financial leverage, cost of capital, the chemical industry, and there is no significant relationship between the ratios of book value to market value, the cost of capital in the chemical industry. Table 5: Correlation of test results, the construction industry COC ABCFO COC Pearson 0.83 0.750 0.055 ABCFO Spearman 0.73 0.224 0.045 0.009 Spearman 0.750 0.234 0.009 Spearman 0. 0.206 0.282 0.200 0.222 0.00 Spearman 0.627 0.29 0.590 0.34 0.200 0.200 0.06 0.232 0.482 0.00 0.02 0.978 0.646 0.29 0.34 0.590 0.002 0.978 According to Table (5), since the level of significance () of the variables of abnormal operating cash flow, and capital costs in the cement industry, is equal to (0.045), and less than 5%, therefore, there is a significant relationship between abnormal operating cash flow, and capital costs in the industry. Table 6: Correlation of test results, the machinery and equipment industry COC ABCFO COC Pearson 0.8 0.706 0.0 0.299 0.530 ABCFO Spearman 0.8 0.49 0.079 0.299 0.400 0.650 Spearman 0.705 0.48 0.365 0.397 0.03 Spearman 0.0 0.079 0.375 0.530 0.650 0.03 Spearman 0.472 0.257 0.8 0.064 0.004 0.35 0.498 0.74 0.473 0.004 0.257 0.35 0.8 0.498 0.064 0.74 According to Table (6), since the level of significance () of variables abnormal operating cash flows, and capital expenditures on machinery and equipment industry, is equal to (0.299), and more than 5 Copyright 204 Centre for Info Bio Technology (CIBTech) 885

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. percent, Thus, there is a significant relationship between abnormal operating cash flows, and capital expenditures on machinery and equipment industry. Table 7: Correlation of test results, nonmetallic minerals industry COC ABCFO COC Pearson 0.440 0.828 0.004 ABCFO Spearman 0.439 0.657 0.003 Spearman 0.738 0.647 Spearman 0.25 0.4 0.39 0.44 0.355 0.033 Spearman 0.296 0.232 0.36 0.048 0.25 0.05 0.26 0.44 0.4 0.355 0.339 0.033 0.2 0.65 0.296 0.048 0.242 0.35 0.36 0.05 0.2 0.65 Given that, the significance level () of the variables, the ratio of book value to market value of equity, and financial leverage, respectively, are equal to (, 0.44 and 0.048); therefore, it can be stated that there is a significant relationship between and financial leverage, cost of capital, nonmetallic minerals industry, and there is a significant relationship between the ratio of book value to market value, the cost of capital, nonmetallic minerals industry. The first research hypothesis Normal Test Distribution of Errors, the first Research Hypothesis Figure : Test the normal distribution of s, the first research hypothesis According to Table 8, the mean value is very small (close to zero), and the standard deviation of s, which is close to, we find that, having s are normally distributed, then the regression can be used. 2 Errors Independence Test, the Hypothesis of the Study One of the assumptions that are included in the regression, the s is independent of each other. If the assumption of independence of s, rejection, and the s are correlated with each other, there is the possibility of regression. In the present study, to investigate the independence of the s, we have used the test DurbinWatson. According to statistics, DurbinWatson, is in the range of.5 to 2.5, H0 test (lack of correlation between the s) will be accepted, otherwise, H0 is rejected (there is a correlation between the s). Copyright 204 Centre for Info Bio Technology (CIBTech) 886

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Table 8: Regression Model Summary of research hypotheses The correlation The coefficient Adjusted coefficient coefficient of of determination determination Various industries 0.547 0.3 0.300 Automotive and 0.70 0.53 0.48 Parts Drug 0.735 0.535 0.59 Chemical 0.738 0.543 0.59 Cement 0.784 0.620 0.606 Machinery and 0.82 0.670 0.69 equipment Nonmetallic 0.740 0.549 0.503 mineral DurbinWatson.928 2.245 2.02 2.069.504.860.940 3 Linear Regression Analysis of the Research Hypotheses First Hypothesis: There is a relationship between abnormal operating cash flow and cost of capital in various industries. Second Hypothesis: There is a relationship between abnormal operating cash flow and cost of capital, and components in the automotive industry. Hypothesis III: There is a relationship between abnormal operating cash flows, and capital expenditures, the drug industry. Fourth Hypothesis: There is a relationship between abnormal operating cash flows and capital expenditures in the chemical industry. Hypothesis V: There is a relationship between abnormal operating cash flow and cost of capital, in the cement industry. Hypothesis Six: There is a relationship between abnormal operating cash flow and cost of capital, machinery and equipment industry. Hypothesis Seven: There is a relationship between abnormal operating cash flows, and capital expenditures, nonmetallic minerals industry. There is no relationship between abnormal operating cash flows, and capital expenditures. There is a relationship between abnormal operating cash flows, and capital expenditures. It should be noted that the model used for the research hypotheses, are: COC = α + β (ABCFO) + β 2 () + β 3 () + β 4 () + є i Table 9: Analysis of variance, regression, hypothesis of research Type of Industry F statistics Various industries 46.629 And parts 2.782 Drug 25.30 Chemical 2.324 Building 55.65 Machinery and equipment 2.807 Nonmetallic mineral.39 significance level () Since, in Table 9, the significance level (), in various industries, is less than 5%, therefore, the assumption of linear relationship between two variables is confirmed. In other words, the overall regression model is significant. Copyright 204 Centre for Info Bio Technology (CIBTech) 887

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Table 0: Table of regression coefficients of the first research hypothesis (Various industries) Nonstandard coefficients )(β Standardized coefficients (β) Tstatistics t () β Standard Constant 24.023.53 5.882 ABCFO 0.022 0.029 0.042 0.759 0.448.045 0.75 0.275 5.969 0.08 0.060 0.057.342 0.80 0.82 0.020 0.384 8.966 There is no relationship between abnormal operating cash flow and cost of capital, in various industries, in companies listed on the Stock Exchange Table : Table of regression coefficients, the second hypothesis (industry segments) Nonstandard coefficients Standardized Tstatistics )(β coefficients (β) β Standard Constant 33.0 2.867.55 ABCFO 0.03 0.037 0.028 0.364 0.09 0.03 0.0.432.633.093 0.24.494 0.305 0.033 0.724 9.236 t () 0.76 0.56 0.39 Table () shows that the estimated variable in the model (abnormal operating cash flow), with a significance level (), equal to (0.76), greater than 5% level, therefore, between the surge Review operating and capital costs, and components in the automotive industry, is not acceptable, the second hypothesis of the study, 95 percent rejected. Table 2: Table of regression coefficients of the third research hypothesis (medicine) Nonstandard Standardized Tstatistics coefficients (β) Constant ABCFO β 2.565 0.0 0.34 0.236 0.90 coefficients )(β Standard 4.676 0.045 0.075 0.467 0.037 0.86 0.475 0.046 0.468 4.6 2.250 4.566 0.504 5.27 t () 0.027 0.65 The third hypothesis of the study, 95 percent approved. Since, β is equal to (0.0), so there is a negative correlation between abnormal operating cash flows, and capital expenditures in the pharmaceutical industry, the companies listed in Tehran Stock Exchange. To confirm or deny the relationship of control variables, and the cost of capital, it can be said that the significance level (), the variable return on assets (), financial leverage (), is equal to ( and ), and less than 5%; and β is (and 0.305 0.34). Copyright 204 Centre for Info Bio Technology (CIBTech) 888

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Table 3: Table of regression coefficients, the fourth research hypothesis (chemical industry) t () Nonstandard coefficients Standardized Tstatistics t () )(β coefficients (β) β Standard Constant 5.906 6.492 2.450 0.07 ABCFO 0.3 0.056 0.28 2.326 0.023 0.506 0.099 0.707 5.5 0.232 0.23 0.0.093 0.278 0.58 0.072 0.29 2.202 0.03 Table (3) shows that the estimated variable in the model (abnormal operating cash flow), with a significance level (), equal to (0.023), less than 5% level, therefore, there is a relationship, between abnormal operating cash flow and cost of capital, the chemical industry, the fourth hypothesis of this study, 95 percent approved. Table 4: Table of regression coefficients, the fifth research hypothesis (building) Nonstandard coefficients Standardized Tstatistics )(β coefficients (β) β Standard Constant 3.647 2.568 5.34 ABCFO 0.009 0.055 0.009 0.60 0.342 0.04 0.607 8.359 0.067 0.064 0.06.048 0.28 0.033 0.269 3.906 t () 0.873 0.297 Table (4) shows that the estimated variables in the model (abnormal operating cash flow), with a significance level (), equal to (0.873), greater than 5% level, therefore, there is no relationship between abnormal operating cash flow and cost of capital, in the cement industry, and the fifth hypothesis of the study, 95 percent rejected. In other words, there is no relation between abnormal operating cash flow and cost of capital, in the cement industry, the companies listed in Tehran Stock Exchange. To confirm or deny the relationship of control variables, and the cost of capital, we can say, since the level of significance (), the variable return on assets () and financial leverage () are equal to ( and ) and is less than 5%; and β is (and 0.28 0.342). Table 5: Table of regression coefficients of the sixth hypothesis (machinery and equipment) Nonstandard β coefficients )(β Standard Standardized coefficients (β) Tstatistics t () Constant 0.740 3.22 3.344 0.002 ABCFO 0.07 0.630 0.35 0.23 0.056 0.03 0.23 0.035 0.034 0.70 0.27 0.388 0.308 6.096.02 3.59 0.760 0.279 0.00 Copyright 204 Centre for Info Bio Technology (CIBTech) 889

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. Thus, in order, there is a negative relationship between return on assets (), financial leverage (), with capital costs in the cement industry. The carrying value of variabletomarket (), with a significance level (), equal to (0.297), cannot have a relationship with, the cost of capital, in the cement industry. Table 6: Table of regression coefficients of the seventh research hypothesis (nonmetallic minerals industry) Nonstandard β coefficients )(β Standard Standardized coefficients (β) Tstatistics t () Constant 0.455 6.303 0.072 0.943 ABCFO 0.073 0.850 0.385 0.040 0.44 0.6 0.335 0.087 0.07 0.797 0.30 0.052 0.508 5.284.50 0.456 0.64 0.257 0.65 Table (7) shows that the estimated variable in the model (abnormal operating cash flow), with a significance level (), equal to (0.64), greater than 5% level, therefore, the unusual cash flow operating and capital costs, the nonmetallic minerals industry, is not acceptable, and seventh research hypothesis at 95% confidence level, is rejected. In other words, there is no relation between abnormal operating cash flows, and capital expenditures on nonmetallic minerals industry, in companies listed in Tehran Stock Exchange. To confirm or deny the relationship of control variables, and the cost of capital, we can say, since the level of significance () of variable return on assets (), is equal to (), and fewer than 5 percent; and β is given by (0.850), so there is a positive relationship between the variable return on assets (), capital cost, nonmetallic minerals industry. However, changing the value of the book value of the stock market (), and financial leverage (), respectively, with a significance level (), equal to (0.257 and 0.65), can be correlated with the cost of capital, the nonmetallic minerals industry. RESULTS AND DISCUSSION Results The advantage of replacing the actual activities of the earnings is that, auditors and regulators, they paid little attention to such behaviors. However, the real benefit management is not without cost, since there is the possibility that cash flow in future periods, influenced by the actions that can be performed, indirectly and negatively to increase profits. The results show that there is a relationship between abnormal operating cash flows, and capital expenditures. In other words, we cannot accept that the cost of capital, are affected by the abnormal operating cash flow. This could be a sign of lack of response from financial investors and creditors against abnormal operating cash flows, or indication of actual earnings management, which, in turn, can be caused by lack of knowledge investors and other relevant stakeholders, and its components, it shows that parties have sufficient knowledge, to the unusual variable operating cash flow, which is the standard measure of real earnings management in this study. Tehran stock condition, it can cause lack of association between abnormal operating cash flows, and capital expenditures. The results correspond with the results of the research, the Valizadeh (2008), Khaki (2007), Kim et al., (203) and Resaian and Hoseini (2008), and it does not correspond with the results of Kal (2007) and Moradzadeh et al., (200). Copyright 204 Centre for Info Bio Technology (CIBTech) 890

Indian Journal of Fundamental and Applied Life Sciences ISSN: 223 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/204/04/jls.htm 204 Vol. 4 (S4), pp. 88089/Fatourehchi et al. REFERENCES Call AC (2007). The Implications of Cash Flow Forecasts for Investors Pricing and Managers Reporting of Earnings. Working Paper, University of Washington. Healy Paul M and James Michael Wahlen (999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons 3 36583. Hilli Holger, Gunther Gebhardt and Stefan Klein (2005). Estimating a Firm, Expected Cost of Equity Capital Using Consensus Forecasts. JeongBon Kim and Byungcherl Charlie Sohn (203), Real Earnings Management and Cost of Capital. Journal of Accounting and Public Policy. Jines D, Dey A and Lys T (2008). Real and accrualbased earnings management in the pre and post SarbanesOxley periods. The Accounting Review 83 757787. Khaki GR (2007). Dissertation Research Approach, third edition (reflecting Press). Litti PM and Skinner DJ (2000). Earning Management: Reconciling the Views of Accounting Academics, Practitioners, and Regulators, Accounting Horizons 4 235 250. Lotfi A (2004). The effect of financial structure on the cost of capital and stock market prices of cement and automobile companies listed in Tehran Stock Exchange, MS Thesis, University of Science and Research Branch. Matsuura S (2008). On the relation between real earnings management and accounting earnings management: Income smoothing perspective. Journal of International Business Research 7 6377. Moradzadeh Fard Mahdi and Adili M (200). Study the relationship between real activities manipulation and the cost of equity of listed companies in Tehran Stock Exchange, Stock Exchange Quarterly II(7). Nasirpour M Osmani and Mohammad Ghasim (2000). The effect of firm size on the cost of capital of listed companies in Tehran Stock Exchange, MS Thesis, University of martyr Beheshti. Rasaian Amir and Hosseini Vahid (2008). Relationship quality items Iranian threats and the cost of capital, Review of Accounting 5(52). Schifer C, Core J, Taylor D and Verrecchia R (20). When does information asymmetry affect the cost of capital? Journal of Accounting Research 49 40. Tian Y (2007). Does Expectations Management Impair Firm Valuation? Available: SSRN.com, working paper. Valizadeh Larijani Azam (2008). Evaluation of real earnings management, MSc thesis, University AlZahra. Copyright 204 Centre for Info Bio Technology (CIBTech) 89