Abstract
This paper investigates the relative and incremental value relevance of earnings and operating income in the emerging capital market of Iran. The issue is tested by regressing stock returns and stock market prices on the levels of earnings and operating income. Based on a sample of 1389 firm-years for firms listed in Tehran Stock Exchange (TSE), during 2003–2006 and using cross-sectional and pooled regressions, unlike prior findings in the studies on developed and mature markets, we find no strong evidence that operating income be more value relevant than earnings. Also, we find no strong evidence that Iranian investors are functionally fixated on earnings.
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