The Role of Current and Non-current Accruals in Relation between Stock Returns and Earnings in Companies Listed in Tehran's Stock Exchange

Accrual Items by changing or adjusting recognition of cash flows during time or inter time periods reduce the timing and matching problems embedded in those cash flows. Thus, it seems that earnings as the final output of accrual process is a better measure for expressing the returns (at least in short period) compared to operating cash flows. But, in long-term, their power to express the returns, getting close to each other. In this paper, we are trying to investigate the role of total accrual items and two of its subordinates (current and non-current accruals) in improving the relation between returns and earnings in time period of 1383-1386. In this study we use the data of 75 companies listed in TSE as our sample and use the Ordinary Least Square and Vuong's Likelihood ratio tests for model selection to test our research Hypotheses. Our results indicate that in short term earnings have more information content than cash flows to express the returns. But, in the long-term their explanation powers getting close to each other. Also our findings show that, current accruals play a no better role in explaining the relation between returns and earnings (neither in short term nor in long term). In short tern the non-current accruals on the other hand, play a role in explaining the relation between returns and earnings.