The Relationship between Disclosure Quality and Stock Returns: Evidence from the Tehran Stock Exchange

Financial information forms the evaluation basis in capital market. Financial statements contain very important information that shareholders use it in making decisions related to investments in stocks. Therefore, this study investigates the relationship between disclosure quality and common stock returns of listed companies in Tehran Stock Exchange with two main components of reliability and timeliness based on the ranking of the companies from disclosure quality point of view in the period 2004 to 2010 in Tehran Stock Exchange. Statistical sample of the present study is 110 companies. The results indicate that there is positive and significant relationship between disclosure quality of company and timeliness of information and financial statements with common stock returns, but there is no significant relationship between reliability of financial information and stock return. Results indicate that participants of the capital market in Iran react positively to the disclosure quality of information by companies and have the ability to understand and use this information in their decision models.