The Impact of Investment Anomalies on Earnings Response Coefficient and Earnings Volatility: The Role of Deviation from Optimal Cash Holdings

Haghdoust, Reza; Ebrahimi, Seyed Kazem; Amri-Asrami, Mohammad

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year 16, Issue 62 (2025)

fa 2025, 16(62): 35-53

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The Impact of Investment Anomalies on Earnings Response Coefficient and Earnings Volatility: The Role of Deviation from Optimal Cash Holdings

Reza Haghdoust¹

, Seyed Kazem Ebrahimi ^*²

, Mohammad Amri-Asrami²

1- Department of Accounting, Semnan University, Semnan, Iran.
2- Department of Accounting, Faculty of Economics, Management and Administrative Sciences, Semnan University, Semnan, Iran.

Abstract: (28 Views)

Investment anomaly refers to a situation in which companies deviate from the optimal level of investment. Balancing available cash with cash requirements is considered the most critical factor for the financial health of any business entity. This study examines the impact of investment anomalies on earnings volatility and the earnings response coefficient, with an emphasis on the role of deviation from optimal cash holdings. Using data from 175 companies listed on the Tehran Stock Exchange over the period 2012-2022, analyzed through a fixed-effects panel data model, the results indicate that investment anomalies have a positive and significant effect on earnings volatility and a negative and significant effect on the earnings response coefficient. Deviation from optimal cash holdings does not significantly alter the effect of investment anomalies on earnings volatility. However, deviation from optimal cash levels significantly strengthens the impact of investment anomalies on the earnings response coefficient. Thus, as investment anomalies increase, earnings may rise, but the earnings response coefficient weakens. Holding more (or less) than the optimal cash amount enhances the effect of investment anomalies on the earnings response coefficient. This issue is crucial because investment anomalies can lead to unpredictable fluctuations in earnings and impact the earnings response coefficient. Practically, the findings of this research can improve financial and investment decision-making and optimize cash management, while from a knowledge perspective, it advances our understanding of the impact of inefficient investments on financial stability and profitability.

Article number: 3

Keywords: Investment Anomaly, Earnings Volatility, Earnings Response Coefficient, Deviation from Optimal Cash Holdings.

Full-Text [PDF 755 kb] (26 Downloads)

Type of Study: Research | Subject: Special

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Haghdoust R, Ebrahimi S K, Amri-Asrami M. The Impact of Investment Anomalies on Earnings Response Coefficient and Earnings Volatility: The Role of Deviation from Optimal Cash Holdings. fa 2025; 16 (62) : 3
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