The Investigation of the Association between Accounting Fundamentals and Business Cycle in Tehran Stock Exchanch (TSE)

This paper investigates the behavior of accounting fundamentals considering the business cycle in companies listed in Tehran Stock Exchange (TSE). The accounting fundamentals that investigated are sales growth, changes in gross margin, changes in income before tax, changes in net income, and total asset growth. The study finds that sales growth and changes in gross margin are positively associated with economic conditions (business cycle). There are systematic differences in accounting sensitivity to the business cycle that can be explained by industry- and firm-specific characteristics. For cyclical industries, the influence of the business cycle exists only on sales but not on the other variables. Further analysis shows that accounting sensitivity to the business cycle decreases with firm size.