Investigating the Effect of the Earning ForecastNews on the Cost of the Capital of Listed Companies in Tehran Security Exchange

ABSTRACT: The aim of this study is to investigate the relationship between earning forecast per share with the cost of the capital of listed companies in Tehran Security Exchange for the period of 2006-2010. Study population consists of listed companies in Tehran Security Exchange, which by using a simple random method,a sample is selected and by using Cochranʹs equation, the adequacy of selected sample was assessed. To collect data, RahavardeNovin’s Software, and to test new hypotheses and analysis of data, SPSS Software, were used, applying descriptive and inferential statistics such as correlation analysis. Results indicated that good news forecasts reduce the capital cost and bad news forecasts increase the cost of capital of the sample companies. According to the findings, the impact of the bad news on the cost of capital is potentially more intense than the effect of good news so that it may completely neutralize the desirable effects of good news. Results also showed that in the companies which have losses, and it has been announced to the users offinancial information in the form of earning forecast, theannouncement of the loss has no effects on the cost of the capital.