Explaining return on equity through economic value added and its components by modulating the quality of profit

From the point of view of investment, low profit quality is not desirable because it will lead to an inappropriate allocation of capital. Users will pay attention to the outcomes of the accounting system, including reported earnings, to measure economic growth. When value issues are raised, the criteria for assessing performance and quality must be evaluated. The present study seeks to study the difference between the economic value added information content and its components, based on the Biddle et al. (1997) and Weset and Worthington (2000) models. On the other hand, with the help of the modified Jones model, the quality of accruals was measured. Combined data (172) company-years (2009 to 2018) were used. The hypotheses were analyzed by regression and t, F test. According to the findings, the information content of the economic value added component of the economic value added is more aggregate. The results of the parent test indicate a significant difference between the content of the economic value added components. Adding the quality of profit to the model leads to a change in the information content of the models. The quality of profit is related to the relationship between economic value added and stock returns, and this interactive effect has also been observed in the level of economic value added components.