The Study of Relationship between Accruals Persistence & Return on Stock

This paper investigates the relationship between accruals persistence & return on stock (ROS) with a balance sheet approach. I use a comprehensive definition of accruals that represent the change in all non-cash assets less the change in all liabilities. Scott et al. proved that the accrual component of earnings is less persistence than the cash flow component of earnings. If investors do not fully anticipate the lower earnings persistence, it may lead to significant security mispricing. If investors understand the implications of accrual persistence, ten there should be no relation between accruals & future abnormal stock returns. However, if investors naively fail to anticipate the lower persistence of the less persistence accrual components, there were will be a negative relation between these accrual components & future abnormal stock returns.  Our population includes listed companies in Tehran Stock Exchange (TSE) for the period 1380 to 1387. We analyzed a sample of 141 companies. My findings don't confirm a negative relation between these accrual components & future abnormal stock returns.