A study on relationship between abnormal accruals and future profitability: Evidence from Tehran Stock Exchange

This paper presents an empirical investigation to study the relationship between future profitability and abnormal accruals on selected firms from Tehran Stock Exchange (TSE). The study selects 223 firms from TSE market over the period 2007-2011. Using the regression analysis, the study shows there was no meaningful relationship between abnormal earnings and future profitability when the level of significance is five percent. There are also seven sub-hypotheses associated with the proposed study of this paper. The results indicate that while there were no meaningful relationship between firm size, capital expenditure, earnings quality and earning forecasted error on one side and future earnings, the study confirms a significance relationship between ratio of book value to equity as well as market leverage and future earnings.