A study on the effects of reporting the profit according to Iranian standards on the firms’ market value

Abstract

The profit and loss statement constitutes one type of information provided to the users to enable them to make informed decisions. The present paper studies the effect of fluctuations and variations in different classes of profit on the firms’ market value. It allows the comparison of the three profit criteria as well as clarifying the importance and informational value of each and the investors’ attitudes towards them. Considering he research limitations, 76 firms enlisted in Tehran Stock Exchange were selected. The study is applied in purpose and post-event causal in methodology. Three hypotheses of various types of profit (net profit, profit after ordinary activities and operating profit) were fitted on the firm’s market value. Based on the model testing results, the fluctuations of net profit and operating profit did not show any significant effects on the firm’s market value in the sample. However, the fluctuations in the profit after ordinary activities did have a significant effect on the firm’s market value, which indicates the investors’ attention to this type of profit in their decisions.