A study of the relative and incremental information content of financial statements in forecasting stock price: Iranian evidence

Abstract

The aims of this study is to determine and compare the relative and incremental information content of accounting variables in relation to the stock price or stock return. For this purpose, operating profit variables, net profit and the ratio of debit to stockholders’ equity has been taken into consideration as independent variables and stock return as a dependent variable. Data were collected from Tehran Stock Exchange by accessible information. Statistical population of the study contains listed companies on Tehran Stock Exchange for the period of 2006 to 2010. The results indicate the correlation ratio of net profit and partial correlation of operational profit in relation to stock return and indicate unrelated quotient of debit to stockholder’s equity in relation to dependent variable. The results also indicate that the net profit has information content in proportion to other two variables. Key words: Relative content, incremental content, balance sheet, profit and loss statement.