Determining the Relationship between Accruals Quality and Cash Holdings for Listed Companies in the Tehran Stock Exchange

The aim of this study is to investigate the relationship between accruals quality and cash holdings for the listed companies in the Tehran Stock Exchange. For determining accruals quality, Dechow and Dichev model (2002), and for breaking accruals into two components, namely the Discretionary and Non-discretionary, adjusted Jones model were employed. Also, to measure cash holdings in exchange companies, Ozkan and Ozkan (2004) and Opler et al (1999) models were used. Our study sample included 54 companies listed in Tehran Stock Exchange (TSE) during 2003 to 2009. For hypotheses testing, pooled data (with fixed effects) and econometric software of Eviews 6, were used. The results reveal there is a positive and non significant relationship between accruals quality and cash holdings, but in the case of the relationships between discretionary and non-discretionary accruals with cash holdings, there were negative and significant, and negative and non-significant relationships, respectively. Also, the results show that bigger companies and the companies with other sources of cash assets for cash hold less cash, but inversely, companies with more return in cash (opportunity cost on investing in cash assets) hold more cash.