Revision effects of frequency of earning forecast on firm structure of the accepted companies in Tehran Stock Exchange (TSE)

This study investigated the effects of revised forecasted earnings frequency on performance of the companies. Updating news frequency revises a company''''s earnings forecasts and deliver more reliable information to the stock market. By reducing information asymmetry, the information needs of the users are satisfied properly and thus the information environment develops. Regarding this, the number of revised forecasted earnings can improve the company''''s performance. The sample included 125 companies listed on Tehran Stock Exchange that used a purposeful screening method during 2010 to 2014. Multiple regression, panel data and F Limer (Chow) and Hausman and Jark tests were used to analyze data. The results showed that increase in the frequency of revised forecasted earrings had a significant positive effect on the company''''s value and the cost of capital equity and had a significant and negative impact on the company''''s stock liquidity. On the whole, the frequency of revised forecasted earrings had positive and significant effects on firm''''s performance.
1- Introduction
Earnings forecast with reasonable, reliable and timely information satisfies the information needs of the users and can also be reviewed during the fiscal year. Companies are also required to notify the changes in terms of the revised profit forecasts. The number of revisions amend a company's profit forecasts to be used as an indicator in order to measure the performance of companies, so, with updating the news about the company earnings forecasts, the index of this factor goes up. With frequent news updates, information environment improves and the company's performance improves considering the size, liquidity, capital costs and the company's value (Yang et al. 2016). Holden and Stork (2008) found that frequent revisions of earnings forecasts is positively associated with trading volume of a company in the stock market and indicates whether the news is updated frequently or not. Companies can provide updated earnings forecast information to investors so as to have more reliable information available about certain companies (Francis and Soufer, 1997). Companies with better informational environment transfer the news more quickly to the capital market and investors also have easier access to the information. Accordingly, stock liquidity will improve due to lower information asymmetry between the company and investors. Reducing the distance between the sale and buy price of the shares that is the most important criteria in stock liquidity lead to the equilibrium price and trading volume will be increased. Reducing asymmetric information between managers and stakeholders lead to increasing the accuracy of the count in profit forecasts. In this study, we investigate the effects of the frequency of revised earnings forecast on the company's performance in companies listed in Tehran Stock Exchange here.
 
2- Research Hypotheses 
       The purpose of this study is to investigate effects of revised forecasted earnings frequency on the companies’ performance listed in the Tehran Stock Exchange. To this end, based on the research objective, the theoretical framework and previous researches, the research hypotheses are as follows:
       H1:  Increased frequency of revision of earnings forecasts increases the stock liquidity.
       H2: Increasing the number of revised profit forecasts increases the value of the company.
       H3: Increased frequency of revision of profit forecasts reduces the cost of equity.
      H4: Increased frequency of revisions of profit forecasts improves the company's performance.
 
3- Methods
This is a practical, quantitative and retrospective study. The research data are taken from the database of the Codal website and the website of the Tehran Stock Exchange. To measure the performance of companies, which is the dependent variable, three measures of the liquidity of the stock, cost of equity and firm value have been used.
To calculate the liquidity of the stock, the monthly average of price difference between offers to buy and sell and the cost of capital is obtained, based on four-factors Cahart model to calculate the value of the company, of the total market value of equity and the book value of debt to the book value of equity. For a more robust examination, logistic regression was used to examine the company's performance with the performance of the company in the higher Middle t estimated as zero and one. To calculate the independent variable, the number of revised earnings forecasts is calculated from the number of times the forecast profit in each fiscal period was adjusted. This study examined the companies from 2010 to end of 2014. The sample included 125 companies listed on the Tehran Stock Exchange market.
 
4- Results
The results showed that increase in the frequency of revision of profit forecasts have a significant and positive effect on firm value and cost of capital. It also has a significant and negative effect on stock liquidity and generally positive and significant impact on firm performance.
 
5- Discussion and Conclusion
In this study, the frequency of revisions of earnings forecast on the company's performance was examined taking into account three indicators of stock liquidity, value and cost of capital. Chang et al (2016) considered the frequency of revisions as the analyst effort, which can more frequently update the news and provide more information to investors. Revision revises a company's profit forecasts and transfers more reliable information to the market with higher speed. It improves the informational environment. We can refer to the positive association of updating with trading volume of a company's stock market. The main research question thus arises: If the frequency of revision of profit forecasts leads to improve in the company's performance?
To answer the proposed question, the information between the years 2010 to 2014 were analyzed in the Tehran Stock Exchange and our experimental results showed that the frequency in revised earnings forecast impacted negatively on the stock liquidity. This is because the number of earnings forecasts revisions reduce the information asymmetry and improve the company's liquidity. But it had a positive and significant impact on the value of the company and the cost of equity as the lower cost of representation has a positive effect on firm value and enhances it as well as improvement in the informational environment has led companies to reduce the cost of equity.
 In general, an increase in the number of revised earnings forecast improves companies' performance by its significant impact and the main hypothesis is confirmed which is consistent with the findings of Chang et al.
The results of this study suggested that in order to control and reduce fluctuations in the cost of equity capital, which is one of the factors affecting the performance of the company, the number of revisions should be increased. In addition, as there is no Iranian entity as financial analysts to provide more reliable information to the capital market, it is suggested that a committee be formed under the supervision of the stock exchange.