Study of Quality and Sustainability of Earnings in Corporate Life Cycles

Abstract

Following the asymmetry phenomenon of information between managers and other users, the financial statements, and in particular investors in accounting profit, as one of the most important financial information gets special importance as an indicator for decision making. In this article we investigate the profit quality and constancy of the life cycle of companies listed in Tehran Stock Exchange. Considering the ratio of cumulative profit and also adopting financing policy, we divide the sample companies into three groups: stages of birth, growth and matured. Having evaluated the profit quality of sample companies by using accruals and multi-variables regression, we also test the profit constancy. This research is applied in respect of goal, and it is descriptive-correlation in respect of data collection method. The research results show that the average of profit quality unlike hypotheses does not have significant difference with each other in those companies which are at birth stage. Considering next three hypotheses, the general conclusion indicates increase order of profit constancy of those companies which are at birth stage compared to other companies. The research results show that the exchange companies have somehow different reactions with regard to the life cycle compared to the profit quality and constancy.