The study of relationship between the changes of Cash Flow Report and the Changes of Market Value of Accepted Companies in Tehran Exchange

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1 International esearch Journal of Applied and Basic Sciences 2013 Available online at ISSN X / Vol, 7 (4): Science Explorer Publications The study of relationship between the changes of Cash Flow eport and the Changes of Market Value of Accepted Companies in Tehran Exchange AzamSoleimani 1, Hamed Achak 2 1. Department of Business Management, Shahreeay branch. Islamic Azad University, Tehran, Iran. 2. Postgraduate of Accounting, Islamic Azad University, Zahedan, Iran. *Corresponding Author hamed_achak@yahoo.com ABSTACT: The purpose of this study is the study of relationship between the changes of cash flow and the changes of market value of accepted companies in Tehran Exchange. In order to test research hypothesis, obtained data from 68 sample companies were analyzed by regression method and related statistical tests for a time period from 2008 to Frompurpose point of view this study is an applied one, from procedure point of view it's a descriptivedeductive one, and from time broad dimension point of view it is a forth happening one. It applied past information of sample companies. In order to evaluate suitable models of hypothesis testing in modulated data, KlomogroveSmearnove and spearman test were applied. esearch results show that there is no meaningful relationship between the changes of obtained cashes from companies'operating activities, funding activities,funding revenue and market value changes. Also, there is no meaningful relationship between the changes of cash flows(operating activities, funding, and funding revenue) and market value of company. Key words: cash flow(operating activities,funding,funding revenue), company s market value INTODUCTION Fundamental changes in Iran economy in recent years like generalization of economic institution ownership,financial supply through emission for public,and specializing of some under control organization are incredible. In other words, growth and development of economic institutions along with complicating of business transactions and decision making systems need related and reliable information that according to that optimized devotion of limited sources. The necessity of perfect decision making in all levels for related and reliable information is an undeniable hypothesis which is approved by experts. These informational necessities will be fulfilled through financial bills which are final and major products of financial reporting system. Financial report should provide information about economic profits, guarantees, and action Aries' rights. These information help investors, thrusters, and other related people to identify financial advantages and disadvantages of business,to evaluateliquidity, to obtain the ability to pay debts,and to evaluate business performance during the period. Problem Expression Today,accounting information systems play important role in fulfilling organization activities and countries economic condition. Many of economic decisions are made by obtained results from these systems. Due to this fact that accounting information systems should provide more related and more reliable information for the users of financial reports to be applied in their decision making model. This question rises that "Do the existing accounting systems provide necessary information for evaluating companies'performance"? Balance sheet items and profit and loss bill are evaluated based on commitment and it is generally believed that these items provide suitable measures from institute efficiency and related information for predicting institutes'future activities and paying exchange profit. But due to the general and intrinsic orientations, there is this doubt that aretraditional accounting methods qualified for reporting today' complex economic activities or not.one of conquering way to some of these orientations is emphasis on reporting cash flows to give the users the possibility of predictions through financial reports.

2 Intl. es. J. Appl. Basic. Sci. Vol., 7 (4), , 2013 One of accounting revolutions, which absorbed some attentions in recent years, is the necessity of providing cash flow report as one of the most important financial reports by business units. This principal financial report may have an underlying role in evaluation of liquidity,and the ability to pay debts. Changes in stock cost and in its result, changes in company s market value are an effective and informational source for investors in evaluating business condition, managers efficiency, and making decisions. So, in this study, we are going to study the relationship between changes of cash flow report items and changes of company s market value to help user to apply information in their decision making effectively. Subject Importance Some performed studies on this subject show that desirability of information based on cash flows in prediction and decision making is more than mandate information. Some other studies approve something else. Other studies concluded that representation of cash information along with mandate information will be more effective. Now, this question rises that if we consider all above mentioned considerations, does cash flow report have the necessary informational content? In response we can tell that as cash flows are the final results of business unit s activity, and on the other hands based on disclosure principle, all information which are potentially useful and their subsequent profits is more than the cost of collecting this information, should be disclosed, cash flow report as one of the most useful informational sources in predicting cash flows whose representation and preparation cost is not much, should be disclosed along with other provided financial reports based on commitment. Of course, we should pay attention to this fact that this should not avoid us from more study to improve better informing quality. Former information related to the cash flow report may help us in judging on the cost, time, and the degree of certain in fulfilling future cash flow reports to the users of financial reports. Mentioned information show the relationship between business unit profitability and its ability to produce cash and so represent the quality of company obtained profit. Evaluation of opportunities and risks of business activity and manager s duty in overseeing business unit need activities especially in obtaining and paying cash by business unit. Balance sheet, financial performance reports, and cash flow report provide information about financial condition, financial performance, liquidity, the ability to return debts, and financial flexibility. Therefore considering a relationship between mentioned information in cash flow report and presented information in other principal financial reports is very important. Not only are the purposes of financial reports distinct from reporting environment but alsothey includethose informational limitations and characteristics which are provided through financial reporting especially byfinancial bills. Financial reporting is one of necessary information sources for those who make decision on a business issues. For decision making, these people should combine relative information from different sources like information about general economic condition, predicting economic condition, political events, and industry future with their own collected information through financial report. Financial report should collect information about economic sources, commitments, and investors rights. These information help investors, thrusters, and other related people to identify weak points and power points of business unit, to evaluate cash, and to study the ability to return debts. They provide a basis for evaluating sources, investors commitment and rights. In order to fulfill accounting and financial reporting purposes, different sources should be used about business units, but this need presenting and providing numerous financial reports. In other words, the purpose of financial reporting necessitate the complete collection of many separate and at the same time related financial reports. Each basic financial reports separately and also each basic financial report totally is useful in fulfilling financial reporting purposes. esearch Purposes Specification of relationship between the changes of company s market value as dependent variable and the changes of cash flow report items as independent variable. Helping to potential investors in better decision making in buying or holding company stock. esearch hypothesis there is a meaningful relationship between the changes of obtained cash from operational activities and the changes of company s market value. there is a meaningful relationship between the changes of obtained cash from investing activities and the changes of company s market value. there is a meaningful relationship between the changes of obtained cash from investing feedback and the changes of company s market value. there is a meaningful relationship between the changes of cash flow report (operational activities and investing activities) and the changes of company s market value. 207

3 Intl. es. J. Appl. Basic. Sci. Vol., 7 (4), , 2013 esearch Applications Clarifying the relationship between the changes of cash flow report items and the changes of company s market value help the users of financial reports to make correct decisions about investing or stock selling, and it help managers in making important decisions like profit share, investing, and financial supply in such a way to maximize investors wealth and hold investing opportunities. ESEACH METHODOLOGY This study is a descriptivedeductive one based on laboratory studies. In other words, research method,from application point of view and information gathering method, is a laboratory and from its statistical method, it is a relative one. In this study the purpose is determination of the amount of quantity relationship between the market value of accepted companies in Exchange and cash flow report items. Linear regression model applies for testing quantity relationship between each determined factors and knowledge division changes. After collecting all variables, the relationship between them will be analyzed by SPSS software. esearch Variables Independent variable the changes of cash flow report items obtained from companies activities Dependent variable the changes of companies market value Statistical Community and statistical sample Statistical community includes all accepted companies in Tehran Exchange and sample gathering method is simple random and systematic deletion. Obtained samples by this method are 68 ones. esearch domain This research on accepted companies in Tehran Exchange from 2008 to 2011 studies the relationship between the changes of cash flow report items and the changes of market value. The study of research hypothesis There is a meaningful relationship between the changes of obtained cash from operational activities of company and the changes of its market value. H0: There is no meaningful relationship between the changes of obtained cash from operational activities in a company and the changes of its market value. H1: There is a meaningful relationship between the changes of obtained cash value in a company and the changes of its market value. Normality of data distribution has been studied by KlomogroveSmearnovetest. Based on test results, Spearman test showed that data for both variables are not normal, thus Spearman non parametric correlation test is used. Data analysis, through Spearman test, shows that correlation coefficient between two variables, the changes of obtained cash from operational activities, and the changes of market value from 2008 to 2011 and the average of 4 year are 0/163,0/155,0/10,032,0/042 and the average of p value (meaningful)are 0/183,0/207,0/41,079,and 0/73 respectively, that all of them have a meaningful ness level higher than 0/05. Thus in this level H0 hypothesis is not denied, so there is no meaningful relationship between the changes of obtained cash from operational activities and the changes of market value of company from 2008 to Total determination coefficient between two variables is (2=0/01)0/01. In other words, only one percent of changes between two variables are the same (only one percent of market value changes from 2008 to 2010 are justified by the changes of obtained cash value by funding activities. (Table 1) 208

4 Intl. es. J. Appl. Basic. Sci. Vol., 7 (4), , 2013 Table 1. Spearman correlation test statistics related to the relationship between the changes of obtained cash from operational activities and thechanges of market value in the company from 2008 to2011. The changes of obtained Cash Flows From operational activities Type of elation ship Spearman Test variable elation ship Meaningfulness Correlation Coefficient The changes of Market Value of Company 2 0/026 0/024 0/01 0/001 0/01 0/183 0/21 0/41 0/79 0/40 0/163 0/155 0/10 0/032 0/ Total There is a meaningful relationship between the changes of obtained cash from funding activities and the H0: There is no meaningful relationship between obtained cash from funding activities and the changes of market value of a company. H1: There is a meaningful relationship between the changes of obtained cash from funding activities and the Data analysis by Spearman test shows that correlation coefficient between two variables, the changes of obtained cash from funding activities, and the changes of market value from 2008 to 2011 and the average of 4 years are 0/064,0/11,0/086,0/156,0176 and the average of p value (meaningful) are 0/60,0/36,0/48,0/20,and0/15,respectively,that all of them are higher than 0/05 meaningful level. Thus in this level H0 hypothesis is not denied, so there is no meaningful relationship between the changes of obtained cash from funding activities and the changes of market value of company from Total determination coefficient between two variables (2=0/031)0/031 or in other words only 3/1 percent of changes between two variables are the same.(3/1 percent of market value changes in company from 2008 to 2011 are justified with the changes of obtained cash from operational activities.(table 2) Table 2. Spearman correlation test statistics related to the relationship between the changes of obtained cash from funding activities and the changes of market value of company from 2008 to The changes of obtained Cash Through Funding activities Type of elation ship Spearman Test variable elation ship Correlation The changes of Market Value of Company Meaningfulness Coefficient 2 0/004 0/012 0/007 0/024 0/031 0/60 0/36 0/48 0/20 0/15 0/064 0/11 0/086 0/156 0/ Total There is a meaningful relationship between the changes of obtained cash from funding output and the H0:there is no meaningful relationship between the changes of obtained cash from funding output and the H1: There is a meaningful relationship between the changes of obtained cash from funding output and the Data analysis by Spearman test shows that correlation coefficient between two variables, the changes of obtained cash from funding output, and the changes of market value of company from 2008 to 2011, and the average of 4years are respectively 0/003,0/20,0/238,0/061, and 0/23 with p value (meaningfulness) of respectively 0/98,0/099,0/051,0/62, and 0/59, that all of them are higher than 0/05 meaningfulness level, thus in this level H0 is not denied. So, there is a meaningful relationship between the changes of obtained cash from funding output and the changes of market value of company from 2008 to Total determination coefficient between two variables is (2=0/053)0/053, or in other words, only 5/3 percent of changes between two variables are the same. (5/3 percent of the changes of market value from 2008 to 2011 are justified by the changes of obtained cash from the output of operational activities of company. (Table 3) 209

5 Intl. es. J. Appl. Basic. Sci. Vol., 7 (4), , 2013 Table3. Spearman correlation test statistics related to the relationship between the changes of obtained cash from funding output and the changes of market value of company from 2008 to The changes of obtained Cash From Funding Output Type of elation ship Spearman Test variable elation ship Correlation The changes of Market Value of Company 2 Meaningfulness Coefficient 0/0001 0/04 0/057 0/004 0/053 0/98 0/099 0/051 0/62 0/059 There is a meaningful relationship between the changes of the items of cash flow report (operational activities and funding activities) and the Linear relationship between the changes of the items of cash flow report for operational activities, funding activities, and funding outputs and the changes of market value from 2008 to 2011 is shown by the use of following multiple linear regression models: Y=B1+B1 X1+B2 X2+B3X3+E In this model, statistical hypothesis for determining above equation are: H0: egression model is not linear. H1: egression model is linear. Due to this fact that calculated p from the test (0/398) is higher than 0/05 meaningful level, thus H0 is not denied in this level, so linear regression model is not meaningful. It means there is no meaningful relationship between the changes of the items of cash flow report (operational activities, funding activities, and funding outputs) and the As 2adj is equal to 0/045, so all entered variables in this model determine only 0/045 variance of the changes of market value of companies from 2008 to 2011.(Table 4) p value 0/398 Table 4. the analysis of regression model variance of the changes of cash flow report items (operational activities, funding activities, and funding output) and the changes of market value of company from 2008 to Fvalue 1/02 2 0/045 0/212 The average of squares 0/225 0/224 0/003 0/20 0/238 0/061 0/23 Freedom degree DISCUSSION AND CONCLUSION Total Square total 0/674 14/35 15/04 The source of changes egression Odd and ends total In modern accounting, presentation of cash flow report as one of the most important financial reports by business units is crucial. Basic financial report will play an important role in evaluating liquidity, and the ability to return business debts. The change of stock price and in its result, the change of market value of a company is an informational and important source for investors in evaluating business condition, managers efficiency, and making decisions. As cash flows are the final products of activity of business unit and on the other hands, based on disclosure rule, all information which are potentially useful and their presentation profits are more than their production cost, should be disclosed. Cash flow report as one of the most useful informational sources in predicting cash flows which production and presentation cost is very low should be disclosed and produced along with other presented financial reports based on commitment. In order to fulfill the purposes of accounting and financial reporting extended information on business units should be collected that this needs preparation and presentation of different financial reports. In other words, the purpose of financial report necessitates a complete collection of some distinct but related financial reports. Each basic financial report separately and all basic financial report totally are important in fulfilling reporting purposes. In addition to this, the role of composed components should not be ignored in fulfilling mentioned purposes. Every financial report represents special and different information. The collection of this different information can not be combined in smaller financial reports and they cannot be presented in such ways that do not lead to the complexity of information. At present, in order to fulfill accounting and financial reporting purposes, basic financial reports like cash flow report on cash entering (sources)and consuming (uses) from operational activities, funding activities, and financial supply activities are provided. 210

6 Intl. es. J. Appl. Basic. Sci. Vol., 7 (4), , 2013 The cost of obtained cash from operational activities is one of major indexes in evaluating this issue that to what extent it devotes sufficient cash flows for repaying loans, holds business unit operational power, leads to paying stock profit, and makes doing new funding possible without asking for help from financial sources out of business unit. epresentation of information will be useful for predicting future cash flows. Operational activities are among those income producing activities which guarantee production, selling, and representation of services and their related expenses and incomes are considered in determining involved profit and loss. Obtained cash flows from operational activities basically include entering and exiting cash flows related to mentioned activities. Thus operational activities are necessary in cash flow as they will be effective in clarifying financial condition and profit making of company, but based on obtained results in this study, this issue is not true for Exchange s Iranian companies. These results are correspondent with Mahmoodi Khoshro (2003) findings who concluded that there is no meaningful relationship between the changes of cash flow report items and the changes of stock output in accepted companies in Tehran Exchange. Also, they are correspondent with Zarif Fard (2004) findings who showed that there is a meaningful relationship between the changes of obtained cash flows from operational activities and the changes of companies market values. But they are not correspondent with Kan Kang findings(2006) who concluded that there is a relationship between the market value of a company and its cash flow components, funding, profit for each stock, growth, total asset official value, systematic risk, total risk. Based on this it would be said that there is not a logical relationship between the changes of obtained cash flows from operational activities and the changes of market value in Iranian companies while this issue is fulfilled in foreign countries, this may be due to this fact that inefficiency of capital market in Iran lead to the lack of reflection of all existing information in stock price and in its result stock output. (Like the changes of cash flow report items which is derived from company s internal happenings) As Tehran s Exchange has a weak efficiency, it will be a justifiable reason for the lack of relationship. It means that Exchange prices do not reflect all existing information completely, at once, and without any bias and do not react to new information soon. Efficient market hypothesis is an overall hypothesis which interprets the relationship between the price of stocks and information and experimental evidences show that more stock output is affected by economic events. In other words, the supply of cash money and its effective application is one of the important duties of managers. Selection of cash money as basis for providing change report in financial report may be considered in as one of basis for decision making for the users of financial reports. Many of mentioned users considered change report on financial condition based on cash moneya mean for evaluating business unit s financial ability. Therefore, paying attention to this in companies is a basic issue which should be considered more. SOME SUGGESTIONS BASED ON ESEACH ESULTS Based on this fact that obtained results from first hypothesis showed that there is no meaningful relationship between the changes of obtained cash from operational activities and the changes of market value of company, it is suggested to managers to compare information content of obtained cash from activity based on Iran s accounting standards to international standards. Based on this fact that obtained results from second hypothesis showed that there is no meaningful relationship between the changes of obtained cash from funding activities and the changes of market value of company, it is suggested to managers to analysis the source of internal financial supplycash streamin their decision making related to funding in companies membered in Tehran Exchange and study the method of calculation of the changes of obtained cash from funding activities. Based on this fact that obtained results from third hypothesis showed that there is a meaningful relationship between the changes of obtained cash from funding output and the changes of market value of company in some years, it is suggested to managers of membered companies in Tehran Exchange to consider the important factor of funding chances(potential) in fulfilling their purpose in maximizing investors asset and to inform investors on how to elevate company s market value, if obtained cash by funding output is known. Obtained results from data analysis in all companies by the use of regression model in fourth hypothesis showed that operational and funding cash method as a source of entering cash to companies has no considerable effect on the change of market value. Therefore, it is suggested that based on obtained results in this study, companies should pay more attention to the operational and funding cash flow. EFEENCES Aali var A cash flow report,97 th magazine, the center of special researches on accounting in accounting organization, Tehran. 211

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