1. science
2. mathematics
3. statistics

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mecn ierebaTa
erovnu li
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t. 9, #1, 2015
BULL ET IN OF THE GEORGIAN NATIONAL ACADEM Y OF SCIENCE S, vols. 9, no. 1, 2015
Management
The relationship between financial capital and
abnormal return
Hanifeh Meraji*, Mohamadreza Abdoli**
* Department of Accounting, Shahrood Science and Research Branch , Islamic Azad University ,Shahrood, Iran
** Department of Accounting, Shahrood Branch, Islamic Azad University ,Shahrood, Iran.
ABSTRACT. The purpose of the research is to investigate the relationship between financial
capital and abnormal return of newly-arrived companies into Tehran Stock Exchange from 2009
to 2014. According to determined limitations in sampling, 106 companies were studied
systematically. SPSS software was used to analyze the data. The results indicated that there is a
positive significant relationship between financial capital and abnormal stock return in newlyarrived companies into stock exchange. Determination coefficient is 0.059 and it means that 5.9 per
cent of changes of financial capital have impact on abnormal return. On the other hand, there is
not a positive significant relationship between economical added value and abnormal return in
newly-arrived companies in stock exchange. Significant level is 0.259 and bigger than 0.05, then
null hypothesis is approved at 95% confidence level representing there is not a significant
relationship between the variables. There is not a positive significant relationship between residual
profit and abnormal return of stock in newly-arrived companies into stock exchange, since
significant level is 0.073 and bigger than 0.05. Finally there is not a positive significant relationship
between book value and abnormal return of stock in newly-arrived companies into stock exchange,
because significance level is 0.832 and bigger than 0.05.© 2015 Bull. Georg. Natl.Acad. Sci.
Key words: quality of life, customer satisfaction, staff, organization
INTRODUCTION
Today more than ever, capital markets have been developed and obtaining structured economical power uses
capital markets beyond geographical borders. Inevitably, the capital market is more susceptible to collusion,
fraud and corruption that the economic authorities have committed in this market. There re different criteria to
measure stock value and to judge company' performance. Lack of using proper criteria for measuring
performance and stock value has led to not move company value toward actual value and consequently, it
leads to loss a group of stock buyers and to take advantage other party. There are two criteria to measure
performance value. One of them is under accounting models which company' stock value is calculated
multiply profit any stock by conversion ratio price to income and another group is under economic models of
value determination.
Theoretical Framework and Research Background
Return of New Stock
In the research, return of new stock means only return resulting from changes of stock price and paid stock
profit to shareholders does not include. The changes of return price in a long – term period is considered and
studied in this research (Abdeh Tabrizi, 2004). The variables of book value, residual profit and economic
added value were used to determine financial capital as follows (Geyser & Liebenberg, 2002).
BVT =
© 2015 Bull. Georg. Natl. Acad. Sci.
The relationship between financial capital and abnormal return
427
RIT =
EVAT =
Then, we can express following equation for independent variable, as follows:
=
Stock return will be calculated as follows:
And market return is calculated as follows:
=
After calculating average abnormal return of n share at month t, following equation is used to calculate
cumulative abnormal return:
=∑
Georgia (2013) studied information contents of profit prediction of newly – arrived companies in Athens Stock
Exchange. The results indicated that managers' predictions are better (more accurate) than predictions of time
series model and on the other hand, there is a positive significant relationship between profit prediction error
and abnormal return of stock.
Worthington and West (2013) studied operational cash and profit before unexpected items via comparing
information contents of economic added value with information contents of residual profit. They studied 110
Australian companies in their research. The results indicated that profit before unexpected item has more
relationship with stock return than other variables. Conversely, economic added value has less relationship
with stock return than other variables.
Clarkson et al (2012) studied 267 newly- arrived Canadian companies. Their findings indicated that there is a
negative significant relationship profit estimation and stock return and voluntarily profit estimation is valuable
in the companies' reports with initial public release.
RESEARCH METHOD
The research is an applied – correlation research and descriptive statistical methods were used to determine the
variables including mean, variance, standard deviation and quarter. In addition to T-test and F-test, regression
also was used to test the hypotheses. The research is done in a 5-year period from 2008 to 2013. 106
companies were studied systematically based on determined limitations in sampling.
RESEARCH HYPOTHESES
 There is a significant relationship between economic added value and abnormal return of newly-arrived companies in
stock exchange.
 There is a significant relationship between residual profit and abnormal return of newly- arrived companies in stock
exchange.
 There is a significant relationship between book value and abnormal return of newly-arrived companies in stock
exchange.
Empirical Results
Testing Research Hypotheses
First Sub – Hypothesis: There is a positive significant relationship between economic added value and
abnormal return of newly-arrived companies in stock exchange.
Table-1: Results of first sub – hypothesis
Variable
Regression
Standard
t-statistics
Significance
coefficient
error
level
0.846272
1.275355
0.663558
0.5142
Intercept
-0.151832
0.130889
-1.16005
0.2591
LEVAIT
0.06
F-statistics
1.346(0.259)
Determination coefficient
0.02
Watson2.39
Adjusted determination coefficient
Durbin
Possibility amount (significance level) is 0.259 and bigger than 0.05. Then null hypothesis is approved and
consequently there is not a relationship between two variables. Determination coefficient is 0.015 and it means
that only 1.5 percent of changes of dependent variable is explainable by independent and control variables.
Bull. Georg. Natl. Acad. Sci., vols. 9, no. 1, 2015
428
M.Abdoli
Practically, this determination coefficient is a low figure. Watson – Durbin amount is 3.39 indicating there is
not an autocorrelation in the model.
If t-statistics is placed in rejection region, null hypothesis is rejected. As can be seen in above table, t-statistics
for economic added value is -1.16, and then variable of company size is not rejected for null hypothesis at 95%
confidence level. Also, t-statistics is 0.633 for intercept indicating null hypothesis is not rejected for intercept.
Then there is a negative relationship between economic added value and abnormal return. First hypothesis is
not supported and then there is not positive significant relationship between economic added value and
abnormal stock return of newly-arrived companies in stock exchange.
 Second Sub – Hypothesis: there is a positive significant relationship between residual profit and abnormal
stock return of newly- arrived companies in stock exchange.
Table-2: Analysis results of second sub – hypothesis
Variable
Regression
coefficient
1.465732
Intercept
0.302011
LRIT
Determination coefficient
Adjusted determination coefficient
Standard
error
1.100413
0.165192
0.06
0.04
t-statistics
1.331984
1.828248
F-statistics
WatsonDurbin
Significance
level
0.1890
0.0736
3.342(0.074)
2.28
Possibility amount (significance level) is 0.073 and bigger than 0.05. Then null hypothesis is approved and
consequently there is not a relationship between two variables. Determination coefficient is 0.044 and it means
that only 4.4 percent of changes of dependent variable is explainable by independent and control variables.
Practically, this determination coefficient is a low figure. Watson – Durbin amount is 2.28 indicating there is
not an autocorrelation in the model.
If t-statistics is placed in rejection region, then null hypothesis will be rejected. As can be seen in above table,
t-statistics is 1.82 for residual profit. Also, t-statistics is 1.33 for intercept indicating null hypothesis is
approved for intercept
Then there is a direct relationship between residual profit and abnormal return, not a significant relation. In
another words, there is not a positive significant relationship between residual profit and abnormal stock return
of newly – arrived companies in stock exchange.
 Third Research Hypothesis: there is a positive significant relationship between book value and abnormal
stock return of newly-arrived companies in stock exchange.
Table -3: Analysis results of third sub – hypothesis
Regression
Standard
t-statistics
coefficient
error
-0.536035
0.163962
-3.269254
Intercept
0.045573
0.213979
0.212979
LBVT
0.0001
F-statistics
Determination coefficient
-0.01
WatsonAdjusted determination coefficient
Durbin
Variable
Significance
level
0.0017
0.8320
0.045(0.832)
2.28
Possibility amount (significance level) is 0.832 and bigger than 0.05. Then null hypothesis is approved and
consequently there is not a relationship between two variables. Determination coefficient is 0.014 and it means
that only 1.4 percent of changes of dependent variable is explainable by independent and control variables.
Practically, this determination coefficient is a low figure. Watson – Durbin amount is 2.28 indicating there is
not an autocorrelation in the model.
If t-statistics is placed in rejection region, then null hypothesis will be rejected. As can be seen in above tabletstatistics is 0.213 for book value indicating null hypothesis is approved for firm size variable at 95 %
confidence level. Also, t-statistics is -3.26 for intercept indicating null hypothesis is rejected for intercept.
Then research hypothesis is rejected and then there is not a positive significant relationship between book
value and abnormal stock return of newly-arrived companies in stock exchange.
Bull. Georg. Natl. Acad. Sci., vols. 9, no. 1, 2015
The relationship between financial capital and abnormal return
429
CONCLUSION
Useful information is decision base who people participate in capital market. Accounting standard setters try to
supply financial reporting and accounting system for information needs of capital market. So, evaluating the
usefulness of accounting information for valuing stock and being relative of accounting information to
company value has been received attention in recent researches and has been put out as a main pattern in
accounting researches (Kordestani & Rudneshin, 2007:45). The purpose of the research is that capital market
activities can increase their wealth via predicting abnormal returns and selecting desirable stock and
consequently make value. The results of the hypotheses are developed as follows:
 First Sub – Hypothesis: there is a positive significant relationship between economic added value and
abnormal stock return of newly-arrived companies in stock exchange.
According to statistical analysis of the hypothesis, it can be stated that possibility amount is 0.259 and bigger
than 0.05. Then null hypothesis is supported and it means that there is not a relationship between two variables
at 95 percent confidence level. Determination coefficient amount is 0.015. It means that only 1.5 percent of
changes of dependent variable is explainable by independent and control variables. This figure is a low amount
in practice. It can be observed a reverse relationship between economic added value and abnormal stock return.
It means that abnormal stock return is reduced with increasing economic added value. The hypothesis states
that abnormal return refers to a part of stock return which is more than predicted return by market fluctuations.
Economic added value is a criterion for measuring performance and calculates the ways leading to increasing
or reducing company value. There is a negative relationship between stock return and economic added value.
Economic added value represents residual profit after deducting capital costs. EVA (economic value added) is
simple performance criterion and provides a actual image of making wealth for shareholders and contributes
managers to decide about investment and identify growth opportunities and attention to short – term benefits
similar to long – term benefits. The role of economic added value is useful and logical financial analysis from
financial performance and financial conditions of business units in comparison with accounting earning. The
results of the hypothesis are compatible with the results of some researches such as Giancarlo et al (2005).
Their findings indicated that if new stock issue is increased, abnormal return will be reduced and economic
added value will be increased. But the results of the research are not compatible with Merio Levis's research
(1993). He found that new stock issue along with discount increases abnormal stock return in short – term.
 Second Sub – Hypothesis: there is a positive significant relationship between abnormal stock return and
residual profit of newly-arrived companies in stock exchange.
According to the result of the research, it should be noted that possibility amount (or significance level) is
0.073 and bigger than 0.05. Then null hypothesis is supported and there is not a relationship between two
variables at 95 confidence level. Determination coefficient is 0.044 indicating only 4.4 percent of changes of
dependent variable are explainable by control and independent variables. This amount is a low figure in
practice. But there is a direct relationship between residual profit and abnormal return, not significant. In
another words, there is not a positive significant relationship between residual profit and abnormal stock return
of newly-arrived companies in stock exchange. Residual profit is calculated in form of accounting income and
similar to regular profits. Regular profits are the profits are calculated multiply book value of any stock at
beginning of period by capital cost rate based on specific capital rate and book value of any stock at the
beginning of the period. The application of residual profit allows analysts to pay more attention to profit
prediction patterns in spite of merely explanation. According to theoretical framework about residual profit
and statistical tests, it can be noted that there is not a significant relationship between residual profit and
abnormal stock return, but a low direct relationship to some extent. In another words, independent variable
(residual profit) only has a 4.4 percent impact on abnormal return. The result is not compatible with the results
of the research conducted by Riter (199) and Bhagat and Rangan (2003).
 Third Research Hypothesis: there is a positive significant relationship between book value and abnormal
stock return of newly-arrived companies in stock exchange.
According to statistical results of the hypothesis, it should be noted that possibility amount (significance level)
is 0.832 and bigger than 0.05, then null hypothesis is supported and there is not a relationship between two
variables. Determination coefficient is 0.014. It means that only 1.4 percent of changes of dependent variable
are explainable by control and independent variables. Therefore, research hypothesis is rejected. It means that
there is not a positive significant relationship between book value and abnormal stock return of newly-arrived
companies in stock exchange. It should be emphasized that book value of a share does not equal with its
market book, because book value of stoke is related to value of registered assets in balance sheet, while market
value is determined based on investors' evaluations from common value of company's assets and its operation
manner. According to statistical test, it did not find a significant relationship in the hypothesis. One of the
research limitations is that there is not relative research background about this regard. In fact, under – studied
Bull. Georg. Natl. Acad. Sci., vols. 9, no. 1, 2015
430
M.Abdoli
variable have been studied less. For example, some researches such as Aksu (2003) and Yang Kim (2009)
studied the effect of firm size, book value ratio to market value ratio and past information on surplus return.
The purpose of telling above explanation is that the effect of the variables of economic added value, residual
profit and book value on abnormal return have not been received more attention, although, abnormal return
amount is different from a country to another country. In spite of stock in initial public issue makes positive
return, but it provides negative income for investors in long – term in comparison with market portfolio. On
the other side, it should be emphasized that any evaluation model that uses discounted cash flows can be
regarded as a model based on residual profit. EVA model (economic added value) encompasses analyst's
assumptions about book value of stock and future profits which it is not possible to be calculated without
additional accounting information. This process requires analysts to correct accounting figures and maintain
added relations. Against EVA, models of RI (residual income) and AEG (abnormal earning growth) apply
existing and reported figures and allow analyst emphasize on financial statements to determine growth rate
than neutralizing accounting approaches.
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Bull. Georg. Natl. Acad. Sci., vols. 9, no. 1, 2015