Study the Effect of Accrual Variability and its Fundamental and Discretionary Components on Idiosyncratic and Systematic Return Volatility

Existing literature shows that idiosyncratic stock return volatility is associated with the quality of financial reporting and financial reporting quality is also affected by the accrual variability. The purpose of this research is investigating the effect of accrual variability and its fundamental and discretionary components on future idiosyncratic and systematic stock return volatility.
Target sample includes 107 firms listed in Tehran Stock Exchange during 2007-2012. Idiosyncratic return volatility is calculated using Fama and French model (1993) and accrual variability is also calculated similar to Shan et al. (2013) for a period of three years. Hypotheses are tested using Regression analysis and panel data method. The results show that accrual variability has negative and significant effect on future idiosyncratic and systematic return volatility. Moreover, fundamental component of accrual has stronger effect on future idiosyncratic and systematic return volatility than its discretionary component.