Investigation on the Relationship Between Earning Quality and Excess Returns

In this research relationship between earning quality and excess returns in the Tehran Stock Exchange (TSE) was investigated. Indeed, this research aimed to investigate “whether earning quality have significant role in market response relative to mispricing and its result on excess returns or not. Therefore, foremost, 59 company for time period 2002-2015 was selected then, those companies earning quality was measured by using eight measures including: earning persistence, earning predictability, earning volatility,   accruals relative to the volatility of operating cash flows, abnormal accruals, accruals quality, earning response coefficient and value relevance and in final relationship between earning quality and excess returns of companies with high earning quality and low earning quality was investigated. Result indicated that relationship between many measures of earning quality and excess returns are insignificant. Specifically, from measures of earning quality, only earning volatility and accruals related to the volatility of operating cash flows have significant relationship with excess returns.