A Pattern for Measuring Quality of Financial Statements

This research aims to present a pattern for measuring the quality of financial statements. To achieve this aim, firstly by reviewing the literature and theoretical background and also running an expert interview, a collection of indexes related to the quality of financial statements are identified, and then by using a questionnaire and performing Fuzzy Delphi method and confirmatory factor analysis we have identified indexes which have a significant effect on the quality of financial statements. After that, using the analytic network process, we have measured the relative weight of each of those indexes (7 indexes) regarding their effect on the quality of financial statements. Lastly, by measuring each of the indexes, and then computing the weighted average of measurements of all indexes (7 indexes), the measure of the quality of financial statements is computed. For assessing the validity of the presented pattern, we have used a regression model for 57 companies listed in Tehran Exchange for years from 1394 to 1396. We have shown that consistent with the literature, there is a significant negative relationship between the quality of financial statements and cost of equity. This relationship proves that the presented pattern has enough validity for measuring the quality of financial statements. Results of this research have shown that average of measures of quality of financial statements for 57 selected firms during years 1394 to 1396 are improved

Cost of Equity and Earnings Transparency

Purpose- The purpose of this research is to examine the relation between earnings transparency and cost of equity. Also the relation between earnings transparency and abnormal return is examined. Design/methodology/approach- Financial data of 121 listed companies quoted in Tehran Stock Exchange is examined for the period of 1384-1388. To measure the earnings transparency, the contemporaneous changes of earnings and returns are used. Cost of equity is calculated based on Fama-French three-factor model. To calculate the dependent and independent variables and to test the hypotheses, the multi-variation regression model is used. Findings- The findings show that there is a negative and significant relation between earnings transparency and cost of equity. That is, firms that have more transparent earnings, experience lower cost of equity. Also there is a negative and significant relation between earnings transparency and abnormal return. Firms that have more transparent earnings, experience lower abnormal return. Originality/value- Emphasizing the importance of financial information transparency (especially earnings) as an important qualitative characteristic in financial reporting and introducing a model for calculating it

A robust linear programming model for index fund construction

In this study, the strategy of effective asset allocation under uncertainty with the capability of risk control, transaction cost reduction and favorable return realization is investigated. In order to implement this strategy and to overcome the shortfalls of classic portfolio optimization models in dealing with uncertainty, the formation of an index fund using a robust approach and considering cardinality constraint became the agenda. Accordingly, in order to solve the index tracking problem, a linear programming model as minimizing the absolute deviation between the expected return of the index fund and that of the benchmark is presented. Considering the dimension of the solution space, a Meta heuristic genetic algorithm was implemented to solve the robust counterpart of the problem. The results of the analysis imply on the selection of 20 stocks as the index fund composition and indicate good performance of the index tracking funds based on criteria such as correlation, root mean square error and the excess return using out of sample data