Pricing Accrual Quality in the Capital Market of Iran

The recent theoretical research has shown that information risk is a non-diversifiable risk factor. This study identifies accrual quality as the measure of information risk. The present study aims to investigate whether accrual quality is priced in the capital market. The population constitutes of the firms listed on the Tehran Stock Exchange. Using filtering technique, 56 firms listed on the Tehran Stock Exchange over the period 2007 -2011 have been selected as the sample. To measure the information risk, accrual quality has been used which is measured by the residuals of the changes of the working capital on the operating cash flows of the prior, current and future periods. The results of this study reveal that the accrual quality is not priced as the information risk in the market and is not a non-diversifiable risk factor.