Applied Research in Financial Reporting

Applied Research in Financial Reporting

Testing Competitive Environment Hypothesis on Tehran Stock Exchange listed Firms: Evidences from Stationary Status of Profitability Measures at Industry and Market levels

Document Type : Original Article

Authors
Mohammad Ali Aghaei
Hosein Etemadi
Aidin Kiani
Abstract
There are several structural elements which affect the earnings behavior during the time. Until now, feasibility of making theory which explains accounting earnings behavior is not proven. According to the competitive environment hypothesis, competitive situation necessitates similar profitability and mean-reverting behavior of
firms’ profits. In competitive environments, profitability rates have mean reverting behavior, but in non-competitive environments rates have stochastic behavior. The purpose of this paper is to investigate stochastic properties of profitability measures (ROA, ROE, ROS) during the years 1384-1392. Results of implementing panel unit root tests (IPS, ADF, Hadri, PP-fisher and Levin, Lin & Chu) have showed that all of three profitability measures have significant mean-reverting behavior and competitive environment hypothesis is accepted at both market and industry levels.
Keywords
Stochastic Behavior
Mean-reverting Behavior
Stationary
Profitability Measures
Panel Unit Root Tests

  • Receive Date 21 January 2015
  • Revise Date 27 September 2017
  • Accept Date 11 April 2015