Modeling the linear dynamics of accounting residual income

The concepts of net surplus and the dirty surplus of accounting earnings form the bases of the equity accounting model. These concepts and linear dynamics of accounting earnings are examined based on the Wiener Process using the economic fundamentals of the Neoclassical School. Stock prices are linked to the variables of stock book value, accounting earnings, and cash dividends, a total of 160 companies listed in Tehran Stock Exchange during 2010-2018 were selected as samples. The results show that in the earnings information model, a positive coefficient for a lagged book value and a negative coefficient for the current book value and, in general, a positive coefficient for the change in the book value are created, which indicates the dynamics of earnings information. The current abnormal earnings are correlated with last year's earnings and a lag book value, and also two lag book value. Therefore, choosing the factor that eliminates the effect of economic inflation is independent of the sign of the coefficients in the information dynamics. The conservatism in the dynamics of information does not affect the sign of these parameters, but the weights of book value and abnormal earnings are related to conservative adjustments. The greater the linear dynamics of information, the fewer arbitrage opportunities there are in capital markets, which increases competition in the market and reduces economic rents.