The Comparison of Value relevance of Earnings levels and Earnings changes in the Return-earnings relation in Accepted Companies in Tehran Stock Exchange

چکیده مقاله

Stock valuation of companies has always been one of the main concerns of investors and capital markets practitioners which has an important role in investment decisions and stockselection. The results of several studies suggest that accounting earnings is a useful tool in stock valuatingand predicting stock returns. But what is debated by researchers is that which variable; earnings change or earnings level ismore effective and has descriptive power in stock return?Experts believed that to answer this question earnings permanence must be considered. This research aims to study the impact of earnings changes and earnings levels in the return-profit relation as well as earnings permanence.The statistical population of this study includes all companies listed on Tehran Stock Exchange during the years between 2007 -2013. Testable samples of research have included 94 companies that after applying systematic sampling have remained. The research is an applied research and its methodology isex post facto and hypotheses have been tested using correlation analysis and multiple regressions were conducted in SPSS, E-views software.The findings show that the proxy ability of earnings changes for unexpected earningsis sensitive to a firm’s time-series earnings permanence property and is unstable and noisywhen earnings contain predominantly transitory components, but that of earnings levels is not.The results support earnings levels are a stable and better value relevant proxy in the return-earningsrelations.

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