Accounting Information Quality, Delay in Stock Price Adjustment and Predictability of Future Returns

Based on extensive research of accounting and finance literature، financial reports are among most important sources of information in capital markets. Consequences of poor accounting quality are reduction in the quality of the firm’s information environment and exacerbate market frictions such as asymmetric information، incomplete information، illiquidity، short sales constraints and noise trading. In this study، we investigate that (i) poor accounting quality is one source of market frictions that contribute to stock price delay، and (ii) the portion of price delay due to poor accounting quality is associated with a stock return premium. We proxy for accounting quality variables such as accrual quality، loss frequency and earnings surprise. We use the price delay measure of Moskowitz. Our sample consists of 165 listed companies in Tehran Stock Exchange for the period of 1381 to 1387 (2002-2008). In order to study the relationships، multiple linear regression and panel method analysis have been used. We found that firms with small earning surprise and large accrual quality measure have significantly higher price delay. But losses frequency have not significant relation with stock price delay measure. Our finding says that high delay firms have not significant return premium relative to low delay firms.