The Investigation of Relationship between Financial Ratios and Stock Return: Income Smoother Firms Versus Non-Income Smoother ones

The relationship between financial ratios and stock return has been studied in many researches and the presence of income smoothing in Tehran Stock exchange (TSE) has been verified. Because of importance of financial reports in predicting and decision making process, income smoothing would be a critical factor in this area. In this paper, the income smoothing impact on relationship between financial ratios and stock return has been studied, during 1382-1386. According to a random selection, the financial data for 70 firms listed in TSE was gathered and analyzed. By using SPSS and Excel, some relevant statistical methods were employed for testing the research hypotheses. “Eckel Model” is the income smoothing model in this paper.
The results show that income smoothing behavior exists in TSE and TSE firms do income smoothing in the operation income, gross profit, and net income levels. Moreover, in spite of significant relationship between some financial ratios and stock return, there is not any significant difference between income smoother firms an non-income smoother ones.