Assessing the quality of profit with risk and return: Evidence from a multi-factor return model

Profit as one of the most important accounting indicators has always been used for various purposes such as stock valuation and corporate management performance and improvement of investment decisions. The purpose of this study is to investigate the quality of earnings using risk and return in Iranian industries. The present study was conducted to provide evidence on the relationship between earnings quality and return and risk. Financial statements were used to collect data. The research hypotheses were tested using a sample of 6 industries admitted to Tehran Stock Exchange during 2014-2017 using multiple regression based on combined data technique and t-test. Findings indicated that there is a significant positive relationship between earnings quality and return and investment risk. According to the results, the first hypothesis that the effect of return and risk on earnings quality is accepted is accepted and the second hypothesis is rejected. Companies with lower profit quality have higher systematic returns than risk rates. The higher the risk and the higher the return, the lower the quality of profit and the higher the likelihood of profit being manipulated