The Role of Earnings Quality and Future Returns: A Rational Decision-Making Simulation Approach

Authors

    Morteza Hadadi Ph.D. student, Department of Accounting, Bo.c., Islamic Azad University ,Borujerd, Iran
    Alireza Ghiyasvand * Assistant Professor, Department of Accounting, Bo.c. Islamic Azad University, Borujerd, Iran 4130700286@iau.ac.ir
    Farid Sefaty Assistant Professor, Department of Accounting, Bo.c., Islamic Azad University ,Borujerd, Iran

Keywords:

earnings quality, future returns, simulation, rational decision-making

Abstract

This study investigates the simultaneous effects of earnings quality, dividend policy, tax management, and firm growth—together with investor behavioral biases—on future stock returns and the mechanisms of rational decision-making in the Tehran Stock Exchange. Data were collected from 129 companies over a 22-year period (2001–2023) and analyzed using dynamic panel econometric methods. To simulate the decision-making process and assess the priority of variables, an artificial neural network and a payoff matrix based on game theory were employed. The findings indicate that high earnings quality, stable dividend policy, and conservative tax management increase future returns. Conversely, an aggressive tax approach and low-quality accruals lead to a decrease in returns. Incorporating behavioral indicators into the model significantly enhances its explanatory power, and the interaction between fundamental variables and behavioral biases plays a decisive role in the intensity of their effects. The game-theoretic portfolio model also confirms that the combination of high accounting compliance and proper tax management yields the highest probability of buy recommendations. Accurate prediction of stock returns requires an integrated approach in which both fundamental and behavioral information are simultaneously evaluated. Within such a framework, financial variables serve as the foundation for decision-making, but their final weighting is adjusted according to the psychological state of the market. The contribution of this study lies in providing an analytical tool for investors and policymakers to optimize portfolios, reduce the cost of capital, and enhance market efficiency.

References

M. Siladjaja, Y. Anwar, and I. Djan, "The Impact of Real Manipulation and Tax Management on Future Market Value: An Artificial Intelligence Simulation of High Earnings Quality," Acrn Journal of Finance and Risk Perspectives, vol. 11, no. 1, pp. 33-54, 2022, doi: 10.35944/jofrp.2022.11.1.003.

A. M. A. Hamour, M. M. A. Saleh, K. K. Abdo, A. a. a. K. A. Alzu’bi, E. Al-Nsour, and A. M. Y. Jwaifel, "The Effect of Financial Reporting Quality on Earnings Quality of Industrial Companies," Corporate and Business Strategy Review, vol. 5, no. 2, pp. 38-50, 2024, doi: 10.22495/cbsrv5i2art4.

P. Wibowo and E. Murwaningsari, "Earnings Quality, Asymmetric Information, and Market Response : Insights From Indonesia," International Journal of Scientific Research in Science and Technology, pp. 377-395, 2020, doi: 10.32628/ijsrst207663.

N. P. E. Astari, M. Y. Puspitha, D. Ni Komang Urip Krisna, and D. Ni Kadek Erina Purnamasari, "Earnings Quality of Companies Listed on the Indonesian Stock Exchange," Jurnal Ekonomi Dan Bisnis Jagaditha, vol. 10, no. 2, pp. 177-184, 2023, doi: 10.22225/jj.10.2.2023.177-184.

M. O. I. Musa, Z. u. Gurama, and A. Ishiaku, "Earnings Quality and Financial Performance of Listed Service Companies in Nigeria," Gjam, vol. 5, no. 2, pp. 97-105, 2023, doi: 10.64290/gjam.v5i2.1190.

R. B. Utami, N. F. Nuzula, and C. R. Damayanti, "The Effect of Earnings Quality on Financial Performance in Indonesia : Is the State-Owned Bank Better Than Private Bank?," Asia Pacific Management and Business Application, vol. 008, no. 02, pp. 105-116, 2019, doi: 10.21776/ub.apmba.2019.008.02.3.

J. R. Prisadi and A. Firmansyah, "Risk Disclosure and Earnings Quality in Indonesia Banking Industries: Fair Value, Diversification, Financial Stability," Riset Akuntansi Dan Keuangan Indonesia, pp. 282-298, 2022, doi: 10.23917/reaksi.v7i3.18410.

C. Wijaya, "Pengaruh Likuiditas, Struktur Modal, Ukuran Perusahaan, Prospek Pertumbuhan, Kualitas Audit Terhadap Kualitas Laba Perusahaan Batu Bara," Jurnal Ekonomi Manajemen Akuntansi Dan Perpajakan (Jemap), vol. 3, no. 2, p. 206, 2020, doi: 10.24167/jemap.v3i2.2267.

A. N. Herman and Y. N. Soenarno, "Using Efficient Contracting Theory to Find Out the Companies’earnings Quality," International Journal Vallis Aurea, vol. 8, no. 1, pp. 65-75, 2022, doi: 10.2507/ijva.8.1.5.90.

D. Tarmidi, E. Murwaningsari, and Z. M. Ahnan, "Earnings Quality and Audit Quality: Analysis of Investor Reaction," Humanities and Social Sciences Letters, vol. 9, no. 3, pp. 250-259, 2021, doi: 10.18488/journal.73.2021.93.250.259.

A. H. Khamainy, "Konvergensi Ifrs Dan Peluang Praktik Manajemen Laba Di Indonesia: Sebuah Literatur Review," Performance Jurnal Bisnis & Akuntansi, vol. 11, no. 2, pp. 130-146, 2021, doi: 10.24929/feb.v11i2.1522.

C. W. Andolo and L. B. Pandeirot, "Analysis of Earnings Growth and Dividends on Stock Returns," Jurnal Akuntansi Dan Keuangan, vol. 30, no. 1, pp. 97-104, 2025, doi: 10.23960/jak.v30i1.3780.

M. S. Osesoga, "Earnings Quality: An Analysis of Indonesia Manufacturing Companies With Dividend Policy as a Moderating Variable," Asia-Pacific Management Accounting Journal, vol. 18, no. 1, pp. 215-235, 2023, doi: 10.24191/apmaj.v18i1-09.

N. Azizah, M. Muwidha, and M. Magdalena, "Analysis of Cash Flow Components, Gross Profit, Earnings Per Share on Stock Returns Manufacturing Company Listed in the Indonesian Stock Exchange From 2016 Until 2018," vol. 183, 2021, doi: 10.2991/aebmr.k.210717.023.

D. I. Sari and Z. Wafa, "Pengaruh Rasio Keuangan Terhadap Pertumbuhan Laba Pada Perusahaan Farmasi Yang Terdaftar Di Perusahaan BEI Tahun 2017-2023," Jemsi (Jurnal Ekonomi Manajemen Dan Akuntansi), vol. 11, no. 1, pp. 272-279, 2025, doi: 10.35870/jemsi.v11i1.3598.

D. Yanti and C. Juliana, "Dampak Book-Tax Conformity Terhadap Earnings Response Coefficient Serta Peran Kualitas Audit Sebagai Variabel Moderasi," Prosiding Working Papers Series in Management, vol. 12, no. 2, pp. 162-173, 2020, doi: 10.25170/wpm.v12i2.4529.

A. James and R. Seranmadevi, "Unpacking the Psychology of Investment Intention: The Role of Emotional Intelligence, Personality Traits, and Risk Behaviour," International Research Journal of Multidisciplinary Scope, vol. 05, no. 01, pp. 198-206, 2024, doi: 10.47857/irjms.2024.v05i01.0189.

I. Pašiušienė, A. Podviezko, D. Malakaitė, L. Žarskienė, A. Liučvaitienė, and R. Martišienė, "Exploring Generation Z’s Investment Patterns and Attitudes Towards Greenness," Sustainability, vol. 16, no. 1, p. 352, 2023, doi: 10.3390/su16010352.

A. Sharma, C. Hewege, and C. Perera, "Exploring the Relationships Between Behavioural Biases and the Rational Behaviour of Australian Female Consumers," Behavioral Sciences, vol. 15, no. 1, p. 58, 2025, doi: 10.3390/bs15010058.

H. Yoon, Y. Yang, and C. K. Morewedge, "Early Cost Realization and College Choice," Journal of Marketing Research, vol. 59, no. 1, pp. 136-152, 2021, doi: 10.1177/00222437211026337.

Y. Moskvyak, А. Кучер, S. Knіaz, Н. Георгіаді, and O. Fedorchak, "Construction of a Model for Forecasting the Rationality of Financial Decisions Under the Conditions of Financial Markets Digitalization," Eastern-European Journal of Enterprise Technologies, vol. 2, no. 13 (134), pp. 38-50, 2025, doi: 10.15587/1729-4061.2025.325518.

R. Mutia, Y. Diantimala, and F. Yusmita, "The Effect of Financial Information on Decision Making to Purchase Shares Using the TOPSIS Method (Technique for Order Preference by Similarity to Ideal Solution)," International Journal of Current Science Research and Review, vol. 07, no. 05, 2024, doi: 10.47191/ijcsrr/v7-i5-66.

S. Mohanty and S. K. Sahoo, "Fortune Investments and Assets," pp. 124-140, 2023, doi: 10.4018/978-1-6684-8488-3.ch009.

Downloads

Published

2026-03-01

Submitted

2025-07-10

Revised

2025-10-11

Accepted

2025-10-17

Issue

Section

Articles

How to Cite

Hadadi, M. ., Ghiyasvand, A., & Sefaty, . F. (2026). The Role of Earnings Quality and Future Returns: A Rational Decision-Making Simulation Approach. Business, Marketing, and Finance Open, 1-24. https://bmfopen.com/index.php/bmfopen/article/view/333

Most read articles by the same author(s)

Similar Articles

1-10 of 100

You may also start an advanced similarity search for this article.