RELATIONSHIP BETWEEN GOING CONCERN CONCEPT AND P/E RATIO IN EMERGING MARKET: CASE OF IRAN

Abstract

Abstract:In the present work, the efficiency of market in going concept concern and the probability of its influence on earning per share has been studied and it is showed that if the ongoing concern concept of a company is high ,its earning and vice versa. In this paper, ranking and scoring of companies according to their ongoing concept concern was developed by one of the bankruptcy prediction models, Zavgren (1982) model that its output in numerical value of zero-one range show the bankruptcy prediction and ongoing concept concern prediction of a company. Since, this model was developed in accordance with financial environment and firms of other countries, and was not applicable in Iranian firms with its different structure, after selecting a sample of 40 firms which listed in Tehran Stock Exchange, (TSE) the coefficients of the model was adjusted with the conditions of Iranian companies. In this research, first, we tested the reliability and validity of the model within a sample of 14 bankrupt and normal companies. After insuring of the efficiency of the model, ongoing concept concern prediction and bankruptcy prediction of sample from automotive industry was assessed. Considering the difficulty of high evaluation or low earning per share, degree of farness or nearness of company earning per share to industry earning per share ,in other words, difference between company earning per share and industry earning per share was considered as a good parameter and it was measured. Then, the meaningful correlation between ongoing concern concept and company earning per share to industry earning per share was calculated. The results revealed that with 5 percent acceptable error, there is no meaningful correlation between these two variables and it is not possible to apply the assessment of differences between companies earning per share to understand their ongoing concern concept in the future.