Influence of Corporate Governance On Accounting Outcomes & Firms Performance

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
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Influence of Corporate Governance on Accounting Outcomes & Firms Performance

Dr. Farzin Rezaei1 Mr. Masoud Jalilmehr2
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: Ph.D. in Accounting -Assistant Professor and faculty member to Qazvin Islamic Azad
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University, Head Writer : Graduate Student in Accounting at Boroujerd Islamic Azad University
ABSTRACT This study investigates how corporate governance affected accounting outcomes and performance at companies admitted to stock market in 2005 to 2010. Corporate governance is a system by which companies are controlled and managed. It is the structure of corporate governance that dictates how rights and responsibilities have to be distributed among role players such as members of the administrative board, managers, stockholders, and other beneficiaries. It also defines decision making procedures and regulations. Hence, considering the fact that corporate governance affects financial and non-financial variables, here we seek to find its impact on accounting outcomes and performance of companies and for this purpose we test the authenticity of the three following hypotheses: 1- Corporate governance has a significant impact on the future output of stocks. 2- Corporate governance has a significant impact on the future output of assets. 3- Corporate governance has a significant impact on uncommon promissory items. The statistical society included 448 companies who were admitted to Tehran Stock Market. Taking the research presuppositions into account and through systematic elimination method, 77 companies were selected as sample. To analyze data OLS regression test was used. The study findings revealed that strategies of corporate governance had significant impact on all three variables, i.e. future output of stocks, future output of assets and uncommon promissory items and the authenticity of all three hypotheses was confirmed. Key words: Corporate governance, accounting outcomes, performance of companies, Tehran Stock Market.
INTRODUCTION
Corporate governance issue was raised in early 1990s in England, Canada and America in response to the problems caused due to the inefficiency of administrative boards at big companies of the world. In recent years, corporate governance has progressed a lot globally. International organizations such as International Corporte Governance Network( ICGN), International Chamber of Commerce(ICC), World Bank, Common wealth Association for Corporate Governance, Organization for Economic Cooperation and Development(OECD), International Federation of Accounting(IFAC) and Standard
COPY RIGHT 2012 Institute of Interdisciplinary Business Research
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& Poor Institute, defined internationally acceptable standards in this regard. The United States, Great Britain and other countries are continuously reinforcing their corporate governance system and are paying special attention to the stockholders and their relations, responsibility of administrative board and improving its performance, administrative board committees, auditing committees, auditors, accounting systems, and internal control. In recent years, corporate governance has presented itself as one of the major and dynamic aspects of commerce and it is attracting attentions in daily increasing manner. Recent studies have proved that structure of corporate governance is directly related with a companys success or failure and it plays role in the future status of companies( Hassas Yeganeh, 2005)
DISCUSSION
STATEMENT OF TOPIC Evidently, the emergence of joint stock companies in industrial world that began in 18th century, has been the greatest revolutionary events happened in the world economy and it may be defined as the most important factor of industrial improvement. One of the outcomes of this phenomenon was the separation of ownership from management. According to theoretical concepts of the Representation Theory and with regard to the researches carried out on the structure of ownership at companies, a question is raised asking whether centralized ownership and its constituents which are the main components of corporate governance structure can affect the possibility of financial crisis at a company or not? The failure of big international companies (Such as Anron) and the relation exists between these failures and companys control system has drawn experts attention towards establishing corporate governance mechanisms in this region and in other countries of the world. The main causal factor of such crises are companies and institutes whose owners and supervisors are commonwealth groups or groups with hidden relationships. With the decline of these companies within the last few years, governmental systems, the public, and private sectors found out that the route of investment flows would rapidly change due to investors lack of confidence and through elimination of investment flows and due to decrease in financial resources , agencies would face a sudden decline. Such crises on one hand conveys problems and challenges of a participative world and on the other hand it reveals the significance of proper ownership structures , efficient financial institutions, unambiguous banking laws, accounting standards, efficient financial codes and timely access to correct data. Moreover, in the recent years, corporate governance has presented itself as one of an important dynamic aspect of commerce across the world. This research is an attempt to
study the relation exists between corporate governance and Companys accounting outcomes and performance (Hassas Yeganeh, 2005)
Importance of Topic and Research Goals

One of the reasons that made corporate governance a significant issue, was the daily increasing rate of financial crisis and violations across the world. Establishment of corporate governance is important because privatization and market based investment is 865
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one of the most important economic topics of the day. Privatization has increased the share of corporate governance in sectors formerly ruled exclusively by the government and new companies have to recourse to the market to raise money, thus they have tried to be admitted to the capital market. Now ownership has been changed from a personal one to company ownership and the role played by financial brokers is more now compared with the past. On the other hand, the role played by institutional investors is now more observable in many countries. Moreover, reformative plans executed as to financial issues have resulted in reformation of countries domestic and foreign economy. Although new corporate governance laws have taken the place of the former ones, they lack enough adaptability and caused some inconsistencies. (Hassas Yeganeh, 2008)
Research Goals include:

1-Finding out the effect of corporate governance on accounting variables.2-Making beneficiaries, and stakeholders of Irans Capital Market familiar with formulation of corporate governance strategies.3- Helping decision makers such as potential and actual investors of Tehran Stock Market.
Research Background in Iran:

1- In her Ph.D. thesis on Corporate Governance & Prediction of Companies Bankruptcy presented at Research & Science Unit of Islamic Azad University(2006), Ms. Zahra Pourzamani revealed the following findings: 1- In Iran, variables extracted from financial statements can allow differentiation between crisis affected financial institutes and institutes not affected by financial crisis. 2- Centralized ownership has a direct relation with the possibility of financial crisis at Iranian institutes. 3- At Iranian institutes, the size of the administrative board has a reverse relation with the possibility of financial crisis. 4-Administrative board members level of independence from management has a reverse relation with financial crisis. 2- In her MA thesis on Impact of Corporate Governance Mechanisms on Performance of Joint Stock Companies Admitted to Tehran Stock Market presented at Alzahra University (2007), Ms. Farahnaz Ghanbari revealed the following findings: 1- The presence of unobligated members in administrative board has no impact on performance.2- Internal audit has a positive direct relation with performance. 3- Clarity of information has no relation with companys performance.4- Institutional investor has a direct positive relation with performance. 3- In his MA thesis on Observance of One of Corporate Governance Principles(Particulars of Administrative Board) at Companies admitted to Tehran Stock Market presented at Boroujerd Islamic Azad University(2008), Mr. Javad Nasrollahi revealed the following findings: 1- 70% of companies admitted to Tehran Stock Market observe the required particulars of administrative board defined by corporate governance principles. 2- There is no significant relation between observance of such particulars and companies financial performance. 4- In his MA thesis on Degree of Concordance between Bank Tejarat Mechanisms and the Banks Corporate Governance Principles and Methods of Improving It presented at Boroujerd Islamic Azad University (Fall 2010), Mr. Teimour Salarizadeh revealed the following findings: 1- Corporate governance improves the structure of the administrative
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board and its performance.2- Corporate governance improves administrative boards supervision over and assessment of activities.3- Corporate governance improves administrative boards responsibility. 4- Corporate governance improves administrative boards internal control and risk management. 5- Corporate governance improves the culture prevailing companies.6-Corporate governance improves clarity of information and ultimately 7- It improves ownership structure and stockholders relationship.
Research background in foreign countries:

1- Mr. David F.Lacker1, Mr. Scott Rochardson2, and Mr. Irem Tuna3(2007) carried out a joint research on Corporate governance, accounting results and organizational performance which revealed the following findings: Particulars of the administrative board, stock ownership and institutional ownership, active members stock ownership, existence of debtors, and administrative wage and salary structure have trivial relation with abnormal obligations, weak relation with new accounting statements, and a good relation with future operational performance and stock output. 2- In his Ph.D. thesis on Agency Leadership System in China (2004), Mr. Martin Hovey reveals the following finding: ownership structure is a key element to achieve a proper leadership system for agencies in China. 3- In her Ph.D. thesis on Corporate governance and companys performance (2005) Ms. Sima Stereo Astava revealed the following finding: Companies with proper leadership system have better financial performance
Research of literature
Governance is derived from the Latin word Gvbernare which usually refers to ship navigation and implies that corporate governance is more a matter of guidance rather than control. Various definitions have been presented for corporate governance, some are limited and focused on companies and some focused on a large number of stockholders and other beneficiaries. According to the existing literature, there is no generally accepted definition as to corporate governance. Each country has a different definition of corporate governance based on its economic and cultural particulars. You cannot even find one generally accepted definition in America or in England. The definitions presented as to corporate governance cannot be categorized under one special class and they belong to a wide range with two extremes of limited and open viewpoints. According to limited viewpoints, corporate governance is something limited to the relation between company and its stockholders. This is an old pattern illustrated by representation theory. At the other extreme, corporate governance is defined as a network of relations, not only between company and its owners(stockholders) but also between company and so many beneficiaries including personnel, customers, sellers, creditors, purchasers of bonds, insurers, purchasers of life insurances and etc. such a viewpoint is conveyed by theory of beneficiaries. (Namazi, Mohammad, 2005) Six important aspects of corporate governance considered globally are: 1- Rapid development of corporate governance standards across the world 2- Enhancing focus on making administrative board professional 3- Redesigning companys leadership roles 4- Reassessment of companys reporting demands 5- Enhancing external focus on corporate governance
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6- Enhancing focus on the (Namazi, Mohammad, 2005) impact of companies on the
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societies
Theoretical Framework of Research

Corporate governance means utilizing resources effectively, showing responsibility in supervising over these resources and aligning individuals interests with companies and societys. Definitions and concepts of corporate governance and reviewing experts viewpoints reveal that corporate governance is a process of supervision and control to warrant that managers performance concords with stockholders interests, structures, processes, cultures and systems that lead to organizations success. Factors such as legal, cultural and religious systems, political and economic conditions (inside and outside company), and ownership structure are effective in formation of corporate governance. We may say corporate governance systems are as numerous as the companies. Corporate governance is a series of processes that decrease risk of representation through enhancing supervision over managers activities, limiting their greed, and improving the quality of data published by companies (Parkinson , 1994). Different theoretical frameworks exist that explain and analyze corporate governance and each focuses on a different aspect of corporate governance.
Theory of Representation
Since the major part of stocks at a big company is owned by legal persons who should introduce natural persons to the administrative board, as their representative, there is a possibility that the representatives personal interests prevail stockholders interests and as a result decisions will be made that ultimately preserves stockholders interests. At big companies that are directly controlled by managers though indirectly controlled by investors, managers face problem as to their short term interests that may endanger other stockholders interests. Under such conditions, managers are stimulated to earn income from miscellaneous sources and this again puts stockholders welfare and interests in danger. This possible problem caused by representatives, makes it hard for the stockholders to manage companies.
Theory of transaction cost

This theory is one of the fundamentals of industrial economy & financial theory. According to this theory, company is more than a mere public economic unit(public joint stock), rather, it is an organization that consists of various individuals with various goals and viewpoints. The theory is based on the fact that companies are now so big that they can be substituted for market when resources are allocated. Actually companies are so complex and big that taking the price fluctuation into account, they guide production activities and balance transaction market. Inside companies, some transactions are eliminated and managers make production coordinated with their preferred transactions. Theory of transaction cost assumes that most individuals are opportunist and although theory of representation focuses on moral risks and representation costs, both theories actually deal with one same problem: how should we convince a manager to focus on
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increasing companys gains and think of stockholders interests in long run instead of thinking of his own interests? (Hassas Yeganeh, 2005)
Theory of beneficiaries
Theory of beneficiaries is a combination of social and organizational theories. This theory is based on the fact that companies are now so big in size that they deeply affect the society and hence they should act with responsibility not only towards the stockholders but also towards other sectors of the society with whom they have mutual interests. In other words, beneficiaries and companies reciprocally affect each other. Beneficiaries include stockholders, personnel, sellers, customers, creditors, nearby companies and the public. Companies may preserve their beneficiaries interests by optimizing their corporate governance and this way they can properly perform their duties and make profit for their stockholders who are their main beneficiaries because if other beneficiaries interests are preserved, the company will definitely move towards the defined goals and each beneficiary will play role on this way(Hassas Yeganeh, 2005)
Various Corporate Governance Systems

Corporate governance systems are divided into two major groups: 1- American-English Model: In this model, ownership and management are not separate from each other. This model can be applied to governmental companies. 2- Asian-European model: In this model, a limited number of influential stockholders are in managerial position. In this model, the border between stockholders and managers is difficult to be recognized. Corporate governance system in a country depends on factors such as ownership structure, economic status, legal system, public policies and culture. Legal framework and structure is the main determining factor for corporate governance system. Moreover, external factors such as flow of capital from outside to inside, the economic status of the world and foreign institutional investment affect corporate governance system in a country (Hassas Yeganeh, 2008).
Research Hypotheses
1- Corporate governance has significant impact on future output of stocks(according to theory of representation) 2- Corporate governance has significant impact on future output of assets(according to theory of representation) 3- Corporate governance has significant impact on uncommon obligatory items(according to theory of representation)
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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Research Method
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This research investigates the effect of disclosure, independence, relationship of administrative board members and period of their incumbency on the future return of stocks, assets and uncommon obligatory items. The research was carried out from 2005 to 2010 and the research society included 488 companies admitted to Tehran Stock Market. To be selected as research sample 1- companies had to be admitted to stock market before 2005 and had to remain active until the end of the research period. By 2010, 134 companies out of 448 companies lacked this specification. 2- They had to have transaction stoppage of less than 150 successive days. 24 companies had alternate stoppage.3- companies fiscal year had to be unchanged. 13 companies had changeable fiscal year.4- companies fiscal year had to end on March 20. Fiscal year of 100 companies did not end on March 20. 5- Sample companies did not have to be categorized under investors, banks, monetary institutions, banks and insurers. 33 companies lacked this requirement. Among these companies, the book value of 54 was negative and ultimately information was not complete at 13 companies. Finally, 77 companies were selected through systematic elimination method. Table 1: Companies selection through systematic method Factor of systematic elimination Number of Number of companies eliminated companies Admitted to stock market before 448 134 2005 and remained active until the end of the research period Had transaction stoppage of less 314 24 than 150 successive days. Had unchanged fiscal year during 290 13 research period Had fiscal year ending on March 277 100 20 Not categorized under investors, 177 33 banks, monetary institutions, and insurers No negative book value 144 54 Information was not complete in 30 13 13 companies
Number of remained companies 314
290 277 177 144
90 77
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Table 2: Introducing Independent Variable & Its Dimensions Independent Corporate governance Details variable Dimensions of Independence of This is a double value nominal scale. independent members of Whenever member of administrative board is variable administrative board the managing director he/she is considered dependent and the value is 0 otherwise the value is 1. Duration of This is a scale that specifies duration of incumbency members incumbency. Disclosure This is a double value nominal scale. If the auditor finds it acceptable the value is 1 and otherwise it is 0. Relationship of This scale specifies the ratio of unobligated unobligated members members to total members of administrative board Table 3:Introducing Dependent Variable & Its Dimensions Dependent Stock return variable Asset return Uncommon This scale is used to assess profit quality and it is obligatory items calculated through Jones Adjusted Model N1it: Net profit TAS: Total Assets Tests to be used in Research Regression, 2-Variance analysis,3-Determination Coefficient , 4- Correlation Coefficient, 5-Durbin-Watson Test Description of Research data Table 4: data description for research variables
Indexes Book value of stocks according to stock market Market value of stocks Free cash flow Financing Corporate governance Future return of stocks Future return of assets Uncommon obligatory items Members relationship Duration of incumbency Mean Standard deviation Minimum Maximum
0/0159 11/52 0/108 2/135 3/87 4/28 0/127 11/93 0/764 2/54
0/042 0/690 0/073 0/253 1/051 1/667 0/111 1/79 0/149 0/841
0/00007 10/18 -0/163 1/23 2/11 0/383 -0/114 8/306 0/3 1/315
0/350 13/27 0/269 2/53 7/6 8/16 0/531 17/39 1 5
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Analysis of Research Data Table 5: Spearman correlation and level of significance of corporate governance, disclosure, and independence with research variables
Governance Book value of stocks according to stock market Market value of stocks Free cash flow Financing Stocks return Future return of assets Calculation of uncommon obligatory items Disclosure Independence
.0/757 0/353 0/953 0/218 0/254 0/359 0/037
0/803 0/676 0/145 0/789 0/004 0/010 0/402
0/613 0/851 0/197 0/396 0/480 0/309 0/005
Table 6: Pearson correlation and level of significance of corporate governance, members relationship and duration of incumbency with research variables
Governance Book value of stocks according to stock market Market value of stocks Free cash flow Financing Stock return Future return of assets Calculation of uncommon obligatory items Members relationship Duration of incumbency
0/757 0/353 0/953 0/218 0/254 0/359 0/037
0/992 0/395 0/018 0/573 0/831 0/796 0/884
0/745 0/170 0/739 0/212 0/702 0/694 0/212
Secondary findings of research hypotheses

Secondary hypotheses resulted from main hypothesis 1 1- The impact of disclosure on future stock return is significant Level of significance of disclosure coefficient test revealed to be less than 1%(0.001). In other words, disclosure can affect dependent variable(stock return). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to disclosure, the stock return increases for 1.45 units, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to disclosure, stock return increases for 0.306. It can be deducted that control variables increase the impact of disclosure on stock return. 2- The impact of independence on future stock return is significant Level of significance of independence coefficient test is more than 1%(0.150), in other words, independence cannot affect the dependent variable(stock return) 3- The impact of members relationship on future stock return is significant Level of significance of members relationship coefficient test is more than 1%(0.482), in other words members relationship cannot affect dependent variable(stock return).
4- The impact of members duration of incumbency on future stock return is significant
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Level of significance of incumbency duration coefficient test is more than 1%(0.089), in other words duration of incumbency cannot affect the dependent variable(stock return) Secondary hypotheses resulted from main hypothesis 2 1- The impact of disclosure on future asset return is significant Level of significance of disclosure coefficient test revealed to be less than 1%(0.004). In other words, disclosure can affect dependent variable(asset return). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to disclosure, the asset return increases for 0.080 unit, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to disclosure, asset return increases for 0.270. It can be deducted that control variables decreases the impact of disclosure on asset return. 2- The impact of independence on future asset return is significant Level of significance of independence coefficient test is more than 5%(0.605), in other words, independence cannot affect the dependent variable(asset return) 3- The impact of members relationship on future asset return is significant Level of significance of members relationship coefficient test is more than 5%(0.411), in other words members relationship cannot affect dependent variable(asset return).
4- The impact of members duration of incumbency on future asset return is significant
Level of significance of incumbency duration coefficient test is more than 5%(0.056), in other words duration of incumbency cannot affect the dependent variable(asset return)
Secondary hypotheses resulted from main hypothesis 3 1- The impact of disclosure on uncommon obligatory items is significant Level of significance of disclosure coefficient test revealed to be less than 5%(0.048). In other words, disclosure can affect dependent variable(uncommon obligatory items). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to disclosure, the uncommon obligatory items decreases for 0.909 unit, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to disclosure, uncommon obligatory items decreases for 0.177. It can be deducted that control variables decreases the impact of disclosure on uncommon obligatory items. 2- The impact of independence on uncommon obligatory items is significant Level of significance of independence coefficient test is less than 1%(0.001), in other words, independence can affect the dependent variable(uncommon obligatory items). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to independence, the uncommon 873
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obligatory items decreases for 1.847 units, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to independence, uncommon obligatory items decreases for 0.295 unit. It can be deducted that control variables increases the impact of independence on uncommon obligatory items. 3- The impact of members relationship uncommon obligatory items is significant Level of significance of members relationship coefficient test is more than 5%(1), in other words members relationship cannot affect dependent variable(uncommon obligatory items).
4- The impact of members duration of incumbency on uncommon obligatory items is significant
Level of significance of incumbency duration coefficient test is more than 5%(0.580), in other words duration of incumbency cannot affect the dependent variable(uncommon obligatory items)
Findings for Main Hypotheses Findings for Main hypothesis 1 The impact of corporate governance on future stock return is significant Table 7: regression coefficients for main hypothesis 1
Level of significance t Standard coefficients Beta Nonstandard coefficients Standard error B Model 1 Independent variable Dependent Variable Fixed value Control BM Control MV Control FCF/Tait-1 Control EF Corporate governance Future stock return
0/020 0/512 0/000 0/276 0/008 0/005
-2/38 0/659 4/98 1/098 -2/73 2/87
0/073 0/544 0/105 -0/259 0/262
3/82 4/34 0/263 2/15 0/625 0/145
-9/063 2/86 1/31 2/36 -1/707 0/416
Level of significance of corporate governance coefficient test revealed to be less than 1%(0.005). In other words, corporate governance can affect dependent variable(stock return). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to corporate governance, the stock return increases for 0.416 unit, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to corporate governance, stock return increases for 0.262. It can be deducted that control variables increases the impact of corporate governance on stock return.
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Findings for Main hypothesis 2 The impact of corporate governance on future asset return is significant Table 8: regression coefficients for main hypothesis 2
Level of significance t Standard coefficients Beta Nonstandard coefficients Standard error B
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0/031 0/035 0/000 0/319 0/000 0/025
-2/2 2/14 4/51 1/004 -3/79 2/29
0/237 0/499 0/097 -0/364 0/211
0/259 0/295 0/018 0/146 0/042 0/010
-0/571 0/633 0/081 0/147 -0/161 0/022
Model 1 Independent variable Dependent Variable Fixed value Control BM Future stock return Control MV Control FCF/Tait-1 Control EF Corporate governance
Level of significance of corporate governance coefficient test revealed to be less than 5%(0.025). In other words, corporate governance can affect dependent variable(asset return). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to corporate governance, the asset return increases for 0.022 unit, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to corporate governance, asset return increases for 0.211. It can be deducted that control variables increases the impact of corporate governance on asset return.
The impact of corporate governance on uncommon obligatory items is significant Table 9: regression coefficients for main hypothesis 1
Level of significance t Standard coefficients Beta Nonstandard coefficients Standard error B Model 1 Independent variable Dependent Variable Fixed value Control BM Control MV Control FCF/Tait-1 Control EF Corporate governance Future stock return
0/009 0/392 0/000 0/065 1/52 0/042
-2/68 0/861 6/77 1/87 1/44 -2/06
0/090 0/704 0/170 0/131 -0/179
3/91 4/46 0/271 2/21 0/642 0/149
-10/53 3/84 1/83 4/15 0/929 -0/307
Level of significance of corporate governance coefficient test revealed to be less than 5%(0.042). In other words, corporate governance can affect dependent variable(uncommon obligatory items). In the equation of Impact of Independent Variables with Intervention of Other Variables which is not standardized, when one unit is added to corporate governance, the uncommon obligatory items decreases for 0.307 unit, while in the equation of Impact of Independent Variables without Intervention of Other Variables which is a standardized equation, when one unit is added to corporate governance, uncommon obligatory items decreases for 0.179 unit. It can be deducted that control variables increases the impact of corporate governance on uncommon obligatory items. Suggestions: 1- Since the impact of disclosure on future stock return, asset return and uncommon obligatory items is significant, the researcher recommends disclosure of information at the time of auditing reports for example at the time of auditing midterm reports. 875
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2- Since the impact of managing directors independence on uncommon obligatory items is significant, the researcher recommends the company to make it a requirement for the managing director to be independent so that it can decrease the pertinent impact on optional uncommon obligatory items and improve the quality of financial reports. 3- Since the impact of members duration of incumbency and relationship on future stock return, asset return and uncommon obligatory items revealed to be insignificant, the researcher believes that based on fundamentalism approach less attention should be paid to these two variables at the time of analyzing companies profitability because these two does not affect future profitability.
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