The Effect of Competition in the Product Market on the Quality of Profits of Homogeneous and Non-Homogeneous Industries of Listed Companies on the Stock Exchange
Profit, as one of the most important indicators of accounting information, has always been the focus of attention of investors and creditors for several purposes such as evaluating stocks and management performance of companies and optimizing investment decisions. Investors attach special value to profit as a forecasting tool. The assumption that profit is one of the first figures related to company-specific information and the most important information presented in financial reports has been supported by many empirical evaluations, which show that investors rely on profit figures in their decisions more than other information provided about company performance such as dividends and cash flows.
Financial reports are one of the most important products of the accounting system, one of the main goals of which is to provide the necessary information to evaluate the performance and profitability of the enterprise. One of the accounting items prepared and presented in financial reports (profit and loss statement) is net profit, which has different applications. Profit is usually considered as a factor for formulating profit distribution policies and a guide for investment and decision-making, and finally a factor for forecasting. Due to the greater knowledge of managers about the company, it is expected that information will be prepared and presented in a way that best reflects the company's situation. On the other hand, for reasons such as retention in the company, receiving bonuses and other factors, the manager may intentionally or unintentionally make the company's situation appear favorable; therefore, the quality of companies' profits is affected by the reporting principles and the discretion of managers. The structure of product markets may affect the company's cash flow risk and, as a result, the quality of profits.
The degree of concentration of sellers in a market is determined by the number of sellers and how their size is distributed. Seller size can be measured in terms of sales, value added, or employment. Market concentration is an organizational characteristic of a market that determines the nature of pricing and the degree of competition or monopoly in the market. Market concentration is a good indicator of how well a market is run. Both economic theory and much empirical work suggest that market competition is strongly influenced by the degree of market concentration. Real markets can be classified from monopoly to competition based on the concentration index. There are several potential reasons why the competitive structure of a product may affect the quality of profits. Firms make different operational decisions. For example, they conduct initial marketing research, present attractive products, decide on production quantities and selling prices, advertise their products, arrange financing, then begin production, and finally sell the products to consumers.