Investigating and explaining the relationship between unexpected earnings and unusual stock yields (Focusing on earning quality features)

Abstract

A lot of financial analysts believe that earning quality is measured based on a set of key financial variables which are useful in evaluating securities. And different reactions from investors and analysts about the information of earnings create different reactions of the market. The purpose of the present study is to investigate the impact of qualitative features of the earnings on the reaction of investors (unusual yield) to unexpected earnings. The population of the study consists of the accepted firms in Tehran Security Exchange and the research sample consists of 101 firms. Data of the study relate to a period of 6 years (2005-2010) which are selected using systematic sampling. Hypotheses test results indicate that there is a meaningful positive relationship between unusual yields and unexpected earnings. Also the effect of the reliability of the earning on the reaction of investors about unexpected earnings is positive and meaningful; on the contrary, the effect of the sustainability of the earning is negative and meaningful. Consequently, it can be mentioned that if the news released by the company show unexpected earnings, the reaction of the stock market to the earnings would be unexpected too, and will end in the unusual yields for the investors.