The Effect of the Operating Cash Flows on Abnormal Accruals in the Companies Listed in the Tehran Stock Exchange (with Emphasis on the Industry Type)

It seems there is question mark over the claim “negative consequences of the accruals depend on the operating cash flows”; and therefore, the goal of this research is to determine the effect of operating cash flows on abnormal accruals in the companies listed in the Tehran Stock Exchange with an emphasis on the type of the industry.

In this research, we have used the modified Jones model to calculate the abnormal accruals. This research’s hypotheses on the data of 118 companies during the six-year period (2011 to 2016) were tested and analyzed, using the multivariate regression model and the panel data method.

The findings indicated that there is a significant inverse relationship between the operating cash flows and abnormal accruals. Furthermore, the results suggested that there is a significant inverse relationship between the operating cash flows in the automotive and parts industry, pharmaceutical industry, and the cement, lime and plaster industry with the abnormal accruals. In other words, with the reduction in the operating cash flows, the abnormal accruals will increase. In general, the findings show that the negative consequences of the accruals depend on the amount of operating cash flows and companies whose operating cash flows are negative could mat distort the results of testing abnormal accruals.