THE EFFECT OF INCOME SMOOTHING IN PRICE BUBBLE FORMATION OF COMPANIES IN TEHRAN STOCK EXCHANGE

The main objective of this paper is to examine the effect of income smoothing in price bubble formation of companies in Tehran Stock Exchange (TSE). Along with this objective, all the companies accepted in Tehran Stock Exchange which had been presented required financial statements and financial information in 2000-2009 were examined. Totally 72 companies from various industries were selected. At first, income smoothing phenomenon was examined in a 10-year period, using Eckel model. Then by using Johansen & Joselius method, bubble test was done. In order to study the relation of income smoothing and price bubble, chi-square test was used. The results show that income smoothing and price bubble are two independent issues and there is not a significant relation between income smoothing and price bubble. So, income smoothing cannot be considered as an effective factor in price bubble formation.