Investors believe accrual quality is defined as close of earning to the cash. Therefore, poor quality of accruals causes increased uncertainty of information and it will lead to rise of investment’s risk. Thus, this study investigated relation between accruals quality and equity risk premium according to three potential factors of Fama and French (1993): 1- equity risk premium 2- size 3- rate of book value to market value. Following, 73 companies listed in Tehran Stock Exchange during 2005-2010 for hypothesis testing used time series data and two-stage cross-sectional regressions (2SCAR). The result of the study indicates that there is not significant relationship between accrual quality and equity risk premium.

Keywords