The Relation between Stock Price Response and Sustained Earnings Growth

Abstract: Firms with growing trend of profitability in previous years could achieve suitable position in capital market and are very concerned about their reputation. Their concern is whether earnings forecast issuing can maintain reputation of the firms or damage it? Therefore, forecast earnings should be issued in such a way to maintain the growing trend of the previous earnings. The study is aimed to investigate the effects of sustainable pattern of growing earning on stock price response. The sample includes 104 firms listed in Tehran Stock Exchange during 2006 and 2011. Results indicate that reaction of stock price to bad news of earnings forecast in firms with sustained growing earnings is different from other firms. Meanwhile, reaction of capital market to good news and earnings per share forecast accuracy is not affected by sustained growth of earnings