stock exchange
Mahdi Saghafi; Azam Pouryousof; Fatemeh Dastgerdi
Abstract
The aim of this research is to examine the impact of knowledge heterogeneity among board members on the optimistic tone of explanatory reports, as well as to investigate the mediating role of earnings management in this relationship. It is expected that differences in the characteristics of a company’s ...
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The aim of this research is to examine the impact of knowledge heterogeneity among board members on the optimistic tone of explanatory reports, as well as to investigate the mediating role of earnings management in this relationship. It is expected that differences in the characteristics of a company’s management team may influence the quality of both quantitative and qualitative financial reporting. To test the research hypotheses, panel data from 125 companies listed on the stock exchange over a 9-year period (2014- 2022) were used. The research models were estimated using multivariate regression analysis. The results show that the heterogeneity of managerial knowledge has a positive and significant effect on the optimistic tone of explanatory reports. Additionally, earnings management also has a positive and significant impact on the tone of explanatory reports. Ultimately, earnings management is shown to mediate the relationship between the heterogeneity of managerial knowledge and the optimistic tone of explanatory reports. The findings offer a new perspective on the role of executive management teams and contribute valuable insights to the literature on the strategic leadership of senior managers and annual board report disclosure.IntroductionGiven the explanatory reports are approved by a company’s senior management team, and the views of board members are communicated to information users, it is likely that differences in the knowledge of senior managers influence the tone of disclosure in these reports. It is expected that variations in the characteristics of a company's management team affect the quality of both financial (quantitative) and explanatory (qualitative) reports. Accordingly, this study investigates the relationship between senior managers' knowledge heterogeneity and the tone of explanatory reports, with a particular focus on the mediating role of earnings management. The importance of this research lies in its aim to raise stakeholder and user awareness of how managerial knowledge influences disclosure tone. It offers empirical evidence highlighting the relationship between managers' knowledge differences and the tone of their explanatory reports. Additionally, the study examines earnings management as a factor influencing this relationship. Since no prior research has specifically explored this topic, this study is the first to assess the impact of knowledge heterogeneity among senior managers on the tone of annual explanatory reports, emphasizing the mediating effect of earnings management. This research contributes to the development of the Iranian accounting literature from several perspectives. It advances the understanding of qualitative financial information, particularly the tone of management disclosures. Furthermore, it employs textual analysis methodology, a systematic and quantitative approach to interpreting communication content and understanding internal managerial attitudes. As this method is still emerging in the field of accounting, the study is also innovative from a methodological standpoint.According to the main question of the research and the presented theoretical framework, the hypotheses of the research are presented as follows:H1: The heterogeneity of managers' knowledge affects the tone of explanatory reports.H2: The heterogeneity of managers' knowledge affects earnings management.H3: Earnings management affects the tone of explanatory reports.H4: The heterogeneity of managers' knowledge affects the tone of explanatory reports through the mediating role of earnings management.2. MethodologyThis research is classified as quantitative, applied, and post-event in nature. Data were collected through document mining, using the new Rahavard software, and by reviewing audited financial statements of companies listed on the Tehran Stock Exchange. The statistical population consists of all companies listed on the Tehran Stock Exchange during the study period from 2014 to 2022. Companies meeting the following criteria were selected as the research sample:Their financial year ends in March, to ensure data comparability.They did not change their financial reporting period during the 9-year study window.Complete data for all variables used in this research were available.They are not banks, insurance companies, or investment companies.Based on these criteria, 125 companies were selected as the final sample. To test the research hypotheses, multivariate regression models were employed using the panel data method. All data were analyzed using Stata statistical software.3. Results and DiscussionThe findings related to the first hypothesis indicate that heterogeneity in managers' knowledge significantly influences the optimistic tone of management's explanatory reports. In other words, the greater the knowledge diversity among managers, the more frequently a positive tone is used in annual reports. This may be attributed to such managers being more risk-averse; concerned about the company’s future, they may attempt to present conditions in a more favorable light to stakeholders. This heterogeneity in managerial knowledge can lead to the presentation of an overly favorable or distorted image of the company’s situation to information users. The results of the second hypothesis show that knowledge heterogeneity among managers also has a significant positive effect on earnings management. That is, as the diversity in knowledge among managers increases, the likelihood of engaging in earnings management also rises. These results are consistent with the contractual incentives (reward) of managers. The findings of the third hypothesis of the study indicate that earnings management has a positive and significant effect on the tone of annual explanatory reports. This means that the lower the quality of financial reporting in companies, the more positive words managers use in their annual reports. In other words, managers seek to hide their possible undesirable performance by distorting users’ perceptions. This finding aligns with the opportunistic theory of managers. The findings of the fourth hypothesis indicate that earnings management can play a mediating role in the relationship between the differentiation of managers' knowledge and the tone of annual explanatory reports. This means that earnings management significantly reflects the effect of managers' knowledge heterogeneity on the tone of financial reports. This issue highlights the self-interest of such managers, who seek to reduce users’ ability to analyze information by disclosing it in an unrealistic manner.4. ConclusionThe results of the present research, while offering a new perspective on the role of the executive management team within companies, provide useful insights that enrich the existing literature on the strategic leadership role of senior managers and the disclosure of annual board reports. These findings contribute to optimizing the structure of senior management teams and can help companies make better decisions to improve overall performance.
Profitability
Reza Malek; Hossien fakhari
Abstract
The significant impact of politics on the capital market has led to a substantial body of accounting and financial research being linked to political events. Accordingly, this study investigates the effect of presidential elections on earnings management, considering the moderating role of ownership ...
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The significant impact of politics on the capital market has led to a substantial body of accounting and financial research being linked to political events. Accordingly, this study investigates the effect of presidential elections on earnings management, considering the moderating role of ownership structure. Data were collected from 122 companies listed on the Tehran Stock Exchange using a systematic elimination method over the period 2005-2022 and analyzed using multivariate regression. The findings indicate that presidential elections have a negative and significant effect on both accrual and real earnings management. Furthermore, when industries were classified based on their political characteristics, results showed that during presidential election years, firms in politically sensitive industries tend to manage earnings through accrual-based methods, while firms in non-political industries rely more on real earnings management. The study also finds that ownership structure—specifically, the proportion of institutional ownership—does not moderate the relationship between presidential elections and earnings management (accrual or real). These findings suggest that during presidential election periods, increased scrutiny from political and social institutions raises the perceived political costs for firms, leading to a reduction in both accrual and real earnings management. Earnings Management, Ownership Structure, Political Control, Political Cost, Presidential ElectionIntroductionThe prominent role of the government in emerging economies highlights its significance in the political and economic systems of these countries (Imani Brandagh & Hashemi, 2018). Furthermore, the impact of macro-political factors on the economic performance of markets, especially capital markets, is considered inevitable (Keshavarz & Rezaei, 2021; Imani Brandagh & Hashemi, 2018). Presidential elections, by creating broad political oversight over managers, such as public scrutiny aimed at judging the economic performance of the ruling political party, oversight by rival political parties seeking to uncover corruption and financial fraud, or increased internal control by the ruling party, raise the political costs for companies. As a result, managers may reduce earnings management to avoid accusations of corruption and financial misconduct (Kim & An, 2021). According to financial literature, these consequences are defined as "political costs," and their increase may create an environment that discourages earnings management (Goncalves et al., 2022; Kim & An, 2021).On the other hand, presidential elections can generate significant political and economic uncertainty, prompting managers to increase earnings management in an attempt to neutralize the effects of these fluctuations (Goncalves et al., 2022; Moshtagh Kahnamoi et al., 2022).This study aims to examine the impact of political costs in Iran’s economic environment, as a significant consequence of presidential elections driven by increased political oversight. The importance of this study in the context of Iran can be discussed from two perspectives: first, the intense political competition among factions and political parties, and second, Iran's state-dominated economy, which is heavily influenced by governmental or quasi-governmental institutions (Fakhari et al., 2021). Literature ReviewKim and An (2021) argue that during presidential elections, increased political scrutiny raises political costs, prompting managers to reduce accrual-based earnings management to avoid accusations of financial misconduct. They attribute this to the easier detection of accrual items compared to real activities (Kim & An, 2021; Fakhari et al., 2015). Similarly, Jain et al. (2021), in their study of nine U.S. presidential election cycles (1980–2012), found that companies manipulate earnings by overproducing in pre-election years and reducing sales-related activities during election years. They also found that firms with higher agency costs reduce real earnings management during elections, while larger firms increase real earnings management in response to political-economic policies and economic uncertainty. MethodologyThis study examines the impact of presidential elections on earnings management (both accrual-based and real) and the moderating role of ownership structure, using multivariate regression over an 18-year period (2005–2022). The data were analyzed using Stata software (version 14). In line with common practices in accounting research, all continuous variables were winsorized at the 1st and 99th percentiles. ResultsThe findings indicate that presidential elections have a significant negative impact on both types of earnings management—accrual-based and real. Specifically, during election years, accrual-based earnings management decreases by 1.4%, and real earnings management decreases by 1.6%. Additionally, the ownership structure (institutional ownership) does not play a moderating role in the effect of presidential elections on earnings management. Furthermore, the findings reveal that the type of earnings management differs between politically connected and non-politically connected firms. Politically connected firms reduce accrual-based earnings management due to its high detectability and the increased political costs associated with it (Kim & An, 2021). However, no significant effect was observed on real earnings management, as the political costs of real earnings management are not as high (Kim & An, 2021). For non-politically connected firms, the findings were precisely the opposite. Consistent with the overall results, the ownership structure did not have a moderating effect in either group examined. ConclusionThe findings indicate that accounting earnings are influenced by the political factor of presidential elections. Additionally, institutional ownership does not affect this relationship. In Iran's state-dominated economy, presidential elections increase political scrutiny from rival political parties, the ruling party, and society, thereby raising political costs. As a result, managers are driven to reduce both accrual-based and real earnings management to avoid financial accusations. Furthermore, politically connected firms refrain from accrual-based earnings management during presidential elections due to its high detectability and the associated political costs; however, they do not react similarly to real earnings management. This behavior stems from heightened political oversight and the increased risk of being accused of financial misconduct (Kim & An, 2021).
Profitability
Hanie Hekmat; Vahid Heydarzadeh khalife khandi; Razieh Ghorbani
Abstract
The purpose of this research is to investigate the moderating role of conservatism in the relationship between audit quality and earnings management. The current research is analytical and correlational. Furthermore, this study is considered quantitative based on the nature and characteristics of the ...
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The purpose of this research is to investigate the moderating role of conservatism in the relationship between audit quality and earnings management. The current research is analytical and correlational. Furthermore, this study is considered quantitative based on the nature and characteristics of the data used to analyze the hypotheses. Data collection involved first using the library method, followed by statistics provided by the Tehran Stock Exchange Organization. The findings obtained from the regression model, based on a sample of 110 companies listed on the Tehran Stock Exchange over an 8-year period from 2015 to 2022, indicate that audit quality has an inverse and significant relationship with earnings management. Additionally, it was found that conservatism influences the relationship between audit quality and earnings management. The results concluded that conservatism reduces earnings management by recognizing losses promptly and delaying the recognition of profits. Since audit quality reduces information asymmetry, it limits profit manipulation through earnings management. In this context, conservatism plays a vital role in restricting managers' opportunistic reporting. Also, conservatism diminishes the company's incentives for earnings management, thereby reducing biases caused by managerial opportunism in accounting. Consequently, conservatism is expected to have a moderating role in the relationship between audit quality and earnings management, and the findings of this research confirm these expectations.IntroductionThe objective of this research is to investigate the moderating role of accounting conservatism in the relationship between audit quality and earnings management. In today's capital markets, earnings management has become a critical concern. It is a tool used by company management to influence earnings so that the numbers reach a predetermined target. This approach is employed for various reasons, one of which is earnings smoothing. As a result, instead of experiencing years of abnormally high or negative earnings, companies aim to maintain relatively stable results by employing innovative accounting tactics (Ismail et al., 2022). The main objective of financial statement auditing is to assure users that the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). According to IFRS, financial reporting must provide truthful information, ensuring that financial statements accurately present the information they claim to provide. It is therefore logical that audit quality has an inverse relationship with the occurrence of earnings manipulation (Ismail et al., 2022). There is also substantial research suggesting that the level of accounting conservatism may reduce the practice of earnings management (Chen et al., 2007; Ball et al., 2000; Khan & Watts, 2009; Aminu & Hassan, 2018; Li et al., 2018). Chen et al. (2007) argued for the existence of a trade-off in conservative practice. Adopting the principle of conservatism may lead to more noise in accounting reports, potentially reducing the value of the stewardship role. On the other hand, this principle may decrease the practice of earnings management. However, Chen et al., (2007) asserted that under reasonable conditions, the reduction in earnings management is sufficient to compensate for the noise caused by excessive accounting conservatism. Legislators, standard setters, and academics have expressed concern that companies use conservative accounting coverage to manage earnings (AICPA, 1939; Devine, 1963; FASB, 1980; Levitt, 1998; Penman, 2001). A significant number of previous studies link the effects of earnings management to audit quality issues (Chowdhury & Eliwa, 2021). The importance of this research lies in its effort to fill the gap in understanding the moderating role of accounting conservatism in the relationship between audit quality and earnings management. MethodologyResearch Type: Based on its objective, this research falls under the category of applied research. Applied research uses the theories, principles, and techniques developed in basic research to address practical, real-world problems. In terms of methodology and nature, this research is a correlational study. Additionally, it is considered descriptive research, as the researcher does not intervene in the position, state, or role of the variables. The research method is inductive.Data Collection: Data collection will be conducted in two stages. In the first stage, a literature review will be performed using library resources and specialized Persian and English texts to establish the theoretical and conceptual framework of the research. In the second stage, financial data for the research will be extracted from the financial statements of companies listed on the Tehran Stock Exchange.Data Analysis: Eviews software will be used to analyze the collected data.Population and Sample: The population of this study includes all companies listed on the Tehran Stock Exchange between 2015 and 2022 (eight years). After applying the necessary limitations, the sample size for this research will consist of 110 companies listed on the Tehran Stock Exchange, representing 880 company-years. It is important to note that only listed companies are included in the study. ResultHypothesis 1: To test the first hypothesis of the study, Model (1) was used. The results of the model estimation show that the coefficient of audit quality (0.3645) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. Among the control variables, firm size, sales growth, and research and development expenses exhibit a positive and significant relationship with earnings management, while financial leverage shows a negative and significant relationship. Additionally, it was found that book value, operating expenses, and sales volatility do not have a significant relationship with earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (3674.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.0803) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains approximately 53% of the variation in total. Based on these results, the first hypothesis of the study is not rejected at the 5% confidence level.Hypothesis 2: To test the second hypothesis of the study, Model (2) was used. The results show that the coefficient of the audit quality variable (0.6577) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. The coefficient of the conservatism variable (0.7305), significant at the 10% level, reveals a significant inverse relationship between conservatism and earnings management. Finally, the combined coefficient of determination for audit quality and conservatism (0.5913) is significant at the 5% level, indicating that conservatism moderates the relationship between audit quality and earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (1893.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.1972) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains about 51% of the variation in total. Based on these results, the second hypothesis of the study is not rejected at the 5% confidence level. ConclusionThe results of the test for the first hypothesis indicate a significant inverse relationship between audit quality and corporate earnings management. Low audit quality occurs when audited financial statements contain errors that the auditor has not identified or disclosed in their report. Therefore, audit quality can be associated with the quality of financial reporting, as higher audit quality ensures higher reporting quality. The presence of audit quality reduces in information asymmetry, which in turn decreases earnings manipulation through earnings management. These results are consistent with the research of Hanoun et al. (2010), Alzoubi (2017), Fatahi Nafchi, and Fazel Dehkordi (2018), and Khajavi and Maimand (2015). The results of the test of the second hypothesis show that conservatism has a moderating effect on the relationship between audit quality and earnings management. Audit quality reduces information asymmetry, which subsequently decreases earnings manipulation through earnings management. In this context, conservatism plays an important role in restricting opportunistic reporting by managers. Furthermore, conservatism reduces a company's motivation for earnings management, thereby mitigating the biases caused by opportunism in accounting.
Profitability
Azam Valizadeh Larijani; Farzaneh Yousefi Asl; Fatemeh Shirzadi; Niloofar Zamani
Abstract
Compliance with social and environmental responsibilities is one of the requirements of the current competitive era, and the competitive pressure on companies in this situation imposes costs that can affect financial performance. This research investigates the moderating role of competitive strength ...
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Compliance with social and environmental responsibilities is one of the requirements of the current competitive era, and the competitive pressure on companies in this situation imposes costs that can affect financial performance. This research investigates the moderating role of competitive strength in the relationship between social and environmental responsibilities and financial performance. The statistical sample for this research consists of companies listed on the Tehran Stock Exchange between 2016 and 2021. Using a regular screening method, 108 companies were selected as samples. After checking the classical assumptions of regression, the panel data model with fixed effects was used. The results showed that social performance has a positive relationship with financial performance. Competitive strength has a negative moderating effect on the relationship between social performance and financial performance. Environmental performance also has a positive relationship with financial performance, and competitive strength has a negative moderating role in this relationship. According to the coefficients of the variables, the social dimension of the company is more effective in increasing performance than the environmental dimension. IntroductionA balance must be established between the modernization process and social and environmental concerns. Additionally, society's expectations regarding moral, legal, economic, and public interests require companies to commit to the communities in which they operate (Porter & Kramer, 2011). On the other hand, the growing interest of companies, especially large, national, and multinational companies, to demonstrate better environmental and social performance as part of their corporate social responsibility policy is often reflected in their management structures and investment policies. In line with the social responsibility policy, companies invest in the environmental field for three reasons: complying with environmental and social regulations and standards, improving company conditions, creating a favorable image of the company for society, and gaining access to other markets (Zaid et al., 2020).Social responsibilities have been utilized in various businesses to achieve a competitive advantage and create stable relationships with society. In this regard, the theory of social responsibilities refers to the combined pursuit of economic progress, social equality, and environmental protection. The nature of social responsibilities is the interconnected and mutual realization of financial, social, and environmental goals (Donkor et al., 2023).A company's environmental responsibility refers to its organizational behavior and commitment to the natural environment, which symbolizes the company's environmental ethics (Dilla et al., 2019). Several studies have shown conflicting results regarding a firm's environmental performance and financial performance. Some previous studies have shown that environmental responsibility improves long-term performance (Arda et al., 2019; Gilal et al., 2019). In addition, green knowledge and innovation promote an environmental orientation that allows companies to improve performance (Atan et al., 2018). On the contrary, since introducing environmental initiatives is costly (Zhang et al., 2019), evidence has shown that corporate environmental responsibility does not always lead to positive results (Chollet & Sandwidi, 2018). Based on a sample of companies listed on the Tehran Stock Exchange, this study examines the role of competitive strength in the relationship between firms’ social and environmental performance and financial performance. Literature ReviewGreen theory emphasizes that community care helps organizations in sustainable development. Hence, government regulations and customer pressure encourage companies to adopt such practices in emerging markets. Environmental responsibility allows companies to improve their competitive advantages and dynamic capabilities (Arda et al., 2019). Incorporating environmental values supports environmental business in the long term (Gill et al., 2019). In general, green knowledge and innovation promote an environmental orientation and green resource management in companies, subsequently allowing them to improve their performance (Atan et al., 2018; Zhang et al., 2019). Based on this, this research expects to improve the effectiveness of a company by using organizational resources for environmental performance while simultaneously improving social performance.Proponents of the positive effects of CSR argue that CSR enhances corporate value and image, as well as develops brand positioning, reputation, and corporate image, which in turn enhances financial performance in the long run (Hill, 2020). It is often assumed that the proper use of economic, social, and governance standards requires higher financial efficiency and performance.Managers of firms with fewer resources have fewer opportunities to divert resources to their advantage (Kumar et al., 2023). They are more concerned about their presence in the market and maintaining their market share in the industry, and they consider themselves less socially responsible towards the company, market, and society (Jiang et al., 2019). The moderating power of competition encourages companies to act in socially responsible ways and helps maintain their reputation (Chih et al., 2010; Graafland, 2018). The intensity of competition affects decisions related to social responsibilities, including social and environmental performance (Jiang et al., 2019). Different levels of competition affect the relationship between the social and environmental performance of companies. Social practices and environmental ethics are intangible assets for a company in capital markets, and these assets change with shifts in competition levels. In particular, considering the role of competitive strength, the relationship between social performance and environmental performance with financial performance changes as the level of competition fluctuates (Saeed et al., 2023). Therefore, the following hypotheses can be proposed:Hypothesis 1: There is a positive relationship between social performance and financial performance.Hypothesis 2: Competitive strength moderates the relationship between social performance and financial performance.Hypothesis 3: There is a positive relationship between environmental performance and financial performance.Hypothesis 4: Competitive strength moderates the relationship between environmental performance and financial performance. MethodologyThis research is practical and post-event, conducted using the secondary data collection method. The information from companies was collected by referring to the Codal.ir website and using their financial statements and attached notes. The study period covers 2016 to 2021. Before testing the proposed model and hypotheses, the assumptions of the regression models were checked. The Chow test, Hausman test, and variance heterogeneity test indicated that the panel data model with fixed effects is suitable for the models of this research. In this study, the Breusch-Pagan-Godfrey test was used to check for heteroscedasticity. The results of the heteroscedasticity analysis show that the residuals of the normal regression models do not have constant variance, indicating heteroscedasticity, and the generalized least squares method was used to address this issue. ResultsThe variable coefficient of social performance in models 1 and 2 is 0.0092 and 0.019, respectively, and is significant at the 99% confidence level in both models. There is a positive relationship between social performance and financial performance, meaning that compliance with social responsibilities leads to an increase in financial performance. However, in model 2, the moderating variable (strength of competition) reverses the relationship between social performance and financial performance. At the 99% confidence level, the strength of competition has a negative effect on the relationship between social performance and financial performance. The variable coefficient of environmental performance in models 3 and 4 is 0.003 and 0.004, respectively, and is significant at the 95% confidence level. There is a positive relationship between environmental performance and financial performance, indicating that compliance with environmental responsibilities leads to an increase in financial performance. In model 4, the sign of the coefficient for the moderating variable (strength of competition) is positive, meaning that the strength of competition has a positive relationship with financial performance. However, the moderating variable reverses the relationship between environmental performance and financial performance, so at the 99% confidence level, the strength of competition has a negative effect on the relationship between environmental performance and financial performance. ConclusionDisclosure of social performance leads to increased financial performance. The disclosure of social performance by the company, as a positive signal to the market and shareholders, directly benefits the improvement of the company’s reputation and value. Additionally, this disclosure can indirectly affect the company’s financial performance through mediators such as competitive advantage, reputation, customer satisfaction, access to capital, and environmental resource efficiency. The company's competitive advantages are one of the important dimensions of market characteristics that company leaders should consider in their efforts to make optimal decisions to maximize financial performance. When there are no competitive pressures, managers may become lax in their duties, leading to poor management and high agency costs.Disclosure of environmental performance also leads to increased financial performance. Compliance with environmental responsibilities and publication of periodic reports raise awareness and judgment among society and stakeholders, thereby strengthening the company's brand. To ensure that environmental goals are met, environmental functions such as the development of environmental policies and programs, setting quantitative and measurable goals for reducing environmental pollution, implementing pollution prevention obligations, measuring and evaluating potential environmental effects, revising executive plans, and making reforms must be carried out.Competitive strength has a negative moderating role in the relationship between environmental responsibilities and financial performance. Today, governments support and encourage companies to fulfill social and environmental responsibilities. On the other hand, when facing external pressures, companies rely on government support and try to attract technical and financial incentives to carry out social and environmental responsibilities at a lower cost and more easily. By actively implementing social and environmental responsibilities, companies can communicate with governing bodies and actively participate in the development and approval of environmental responsibility programs. These actions help companies gain external legitimacy and promote their corporate brand. In this way, by taking advantage of these factors, companies can increase profitability while raising product prices and consolidating customer loyalty. Additionally, emphasizing the reduction of physical waste through environmentally friendly solutions can lay the groundwork for reducing costs and increasing profitability.
Accounting and various aspects of finance
Saman Mohammadi; Zahra Oryaie; Ali Naderi
Abstract
Considering the impact of CEO Power on a bank’s performance, CEOs can play a role in social responsibility and earnings management. Given that earnings management in banks can have various effects on other industries and the overall economy, banks tend to practice earnings management more frequently ...
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Considering the impact of CEO Power on a bank’s performance, CEOs can play a role in social responsibility and earnings management. Given that earnings management in banks can have various effects on other industries and the overall economy, banks tend to practice earnings management more frequently than non-financial organizations. Furthermore, due to a lack of transparency and information asymmetry, banks are required to be more accountable to society than other industries. Therefore, this research aims to investigate the impact of CEO Power on the relationship between social responsibility and earnings management in banks. The research sample comprises 16 banks listed on the Tehran Stock Exchange Market and Iran OTC between 2016 and 2021. These banks were selected to test the research hypothesis. The findings of the study suggest that social responsibility has a significant negative impact on earnings management in banks. This implies that an increase in social responsibility may lead to a decrease in information asymmetry and lack of transparency, resulting in a decrease in earnings management. Furthermore, the findings of the study indicate that CEO power does not play a significant role in moderating the relationship between social responsibility and earnings management in banks.IntroductionIndeed, engaging banks in social responsibility practices is expected to be beneficial for their stakeholders. In this context, stakeholders are often attracted to banks with a good reputation for social responsibility. Therefore, executives may engage in social responsibility activities to gain support from stakeholders, defend themselves against stakeholder activism, manage their business reputation, or protect their own careers. However, executives may also engage in social responsibility activities to manipulate earnings management and hide their self-interest motivations, which leads to agency problems. These agency problems arise when executives take opportunistic actions such as earnings management to maximize their profits, increasing the bank's agency costs. Given the influence of powerful CEOs on a bank’s performance, powerful CEOs play a role in social responsibility and earnings manipulation. Therefore, CEO power is one of the most important determinants affecting managers’ decisions.the current research has several important aspects. First, it extends the literature on the effect of commitment to social responsibility activities on firm earnings management, with a specific focus on the banking sector. Second, the research fills a gap in the literature regarding the role of social responsibility in financial reporting. Previous studies have not provided a clear consensus on whether social responsibility commitment has a positive or negative impact on financial reporting quality. Given the diversity of findings reported by previous studies, more research is needed to focus on understanding how social responsibility commitment can affect financial reporting quality, as proxied by earnings management practices.Does social responsibility affect banks' earnings management? Does CEO power have a significant effect on the relationship between social responsibility and earnings management of banks and strengthen this relationship?Literature Review2.1. Corporate social responsibility and earnings managementTo understand the link between corporate social responsibility (SR) and earnings management (EM), previous studies have proposed two perspectives: the ethical perspective and the managerial opportunism perspective. The ethical perspective assumes that EM is negatively associated with SR, while the managerial opportunism perspective argues that EM and SR are positively related. This leads us to our first hypothesis:H1. There is a significant relationship between SR and EM.2.2. Corporate social responsibility, earnings management and CEO powerGiven the influence of powerful CEOs on bank’s performance, powerful CEOs play a significant role in both SR input and earnings manipulation. Therefore, CEO power is considered one of the crucial determinants affecting managerial decisions. Hence, CEO power may have a moderating effect on the relationship between SR and EM. Accordingly, we propose the following hypothesis:H2. Powerful CEOs moderate the SR–EM relationship. MethodologyThe statistical population of this research consists of banks enlisted in the Tehran Stock Exchange Market and Iran OTC. The data from 16 banks for the period between 2016 to 2021 have been analyzed to test the research hypotheses. The statistical method employed in this study is the regression model of mixed data using panel data approach with a random effects estimation.ResultsThe obtained results suggest that social responsibility has a negative and significant effect on bank’s earnings management. In other words, as social responsibility increases, earnings management in banks is expected to decrease. Furthermore, the results show that the significant relationship between social responsibility and earnings management is not maintained when the adjusting variable of the CEO's power is included. In other words, the CEO's power does not have a significant effect on the relationship between social responsibility and earnings management.Discussion and ConclusionWith an increase in activities related to social responsibility, banks experience a decrease in earnings management. This observation aligns with the ethical perspective and the signaling theory, which suggest that social responsibility can serve as a tool to reduce earnings management. Banks with higher levels of social responsibility not only exhibit greater transparency regarding their social responsibility initiatives and stronger engagement with stakeholders, but they also tend to engage in less earnings management. Additionally, the study found that CEO power does not moderate the relationship between social responsibility and bank earnings management. This finding contradicts the theoretical foundations and the research background, which propose that CEOs may use social responsibility to gain stakeholder support, manage their reputation, and defend against stakeholder activism. Therefore, it is evident that relying solely on CEO power and characteristics may not lead to accurate decision-making in this domain. Shareholders and other financial decision-makers should consider factors beyond CEO power when attempting to moderate the relationship between social responsibility and earnings management.
Financial Accounting
Mohsen Imeni; Seyyed Mohammad Moshashaei
Abstract
The two approaches are more prominent in the accounting literature, accrual-based earnings management and manipulating the actual activities however, the present study is considered the third type of earnings management model, namely a classification shifting. The purpose of this study is to investigate ...
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The two approaches are more prominent in the accounting literature, accrual-based earnings management and manipulating the actual activities however, the present study is considered the third type of earnings management model, namely a classification shifting. The purpose of this study is to investigate the effect of constraints on earnings management strategies on the application of shifting strategy in earnings classification in the Iranian capital market. The research sample consisted of 114 firms from 2013 to 2021 (1026 observation). Logistic regression models have been used to test research hypothesis. The results of the study show that financial health, institutional shareholders, audit firm size and market share have a negative and significant effect on the classification shifting. Also, the operating cycle has a positive and significant effect on the c classification shifting; and its tenure does not have a significant effect on the classification shifting. Additional tests indicated large companies have a greater incentive to do classification shifting (a form of earnings management) compared to small companies, because they have greater political costs.
Accounting report
Elnaz Akbarlou; Mehdi zeynali; Mehdi alinezhad sarokolaei; Rasoul baradaran hassan zadeh
Abstract
Narcissist managers, with behavioral characteristics such as selfishness, domination, and self-aggrandizement, don’t consider rules and regulations important. They manipulate detailed accounting reports opportunistically using positive words in an optimistic manner. This study aims to investigate ...
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Narcissist managers, with behavioral characteristics such as selfishness, domination, and self-aggrandizement, don’t consider rules and regulations important. They manipulate detailed accounting reports opportunistically using positive words in an optimistic manner. This study aims to investigate the relationship between managers' narcissism and the optimistic tone of financial reporting with the moderating role of earnings management. To measure narcissism, two proxies are used: the area of managers’ signatures and the ratio of managers' remuneration to the total annual salary of employees, and vocabulary frequency as a criterion to measure optimistic tone. The sample includes 115 companies listed in Tehran Stock Exchange throughout 2011- 2018. To test the research hypotheses, regression has been used. Results indicate that there is a positive and meaningful correlation between the narcissism of managers and the optimistic tone in financial reporting. In other words, narcissist managers consider financial reports prepared based on an optimistic tone as an opportunity to satisfy their insatiable desire for self-promotion. Earnings management has got a positive moderating effect on the correlation of narcissism of managers and optimistic tone in financial reporting.
Mohammad Reza Abbaszadeh; Javad Rajabalizadeh; Mostafa Ghannad
Abstract
In firms with political connections, Related party transactions may be facilitate the goals of this. In other words, related party transactions in firms with political connections and existence influential members, could lead to abuse of company resources and therefore the earnings management. The purpose ...
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In firms with political connections, Related party transactions may be facilitate the goals of this. In other words, related party transactions in firms with political connections and existence influential members, could lead to abuse of company resources and therefore the earnings management. The purpose of this study, first, is examining the relationship between political connections and related party transactions, second, investigation the impact of political connections on relationship between the related party transactions and earnings management. In this paper, political connections are measured by factor analysis and including five variables: stock market value, assets book value, income taxes, number of employees and the insurance payment. In order to test the research hypotheses, we use 120 companies financial information in the Tehran Stock Exchange in the period 2010 to 2017 and analyze this information with multiple linear regression an panel data. The results showed a positive and significant relationship between political connections. also, not found significant relationship between related party transactions and earnings management, but with the addition of political connections, found positive relationship between the related party transactions and earnings management
Ahmad Badri; Ali Ebrahimnejad; Ali Tahmasebi Torshizi
Abstract
An extensive literature examines managers’ incentives to smooth reported earnings using accruals in order to reduce price fluctuation of stocks in markets. Banks have additional incentives to engage in earnings management for a number of reasons, including tighter regulatory environment. They also ...
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An extensive literature examines managers’ incentives to smooth reported earnings using accruals in order to reduce price fluctuation of stocks in markets. Banks have additional incentives to engage in earnings management for a number of reasons, including tighter regulatory environment. They also have the ability to manage earnings using loan loss provisions (LLP). This paper examines earnings management using accruals – in particular, LLP - as the main accrual item in financial reporting of banks in the Iranian banking industry from 2005 to 2016. From previous studies, we expect that for banks with good (poor) current performance and expected poor (good) future performance, managers will save income for (borrow income from) the future by reducing (increasing) current income through LLP, especially discretionary LLP (DLLP). We also examine the effect of external financing, availability of other methods of earnings management like increasing (decreasing) non-operating income and capital requirements and also the relation of DLLP with risk. Our results indicate that bank managers do save earnings through DLLP in good times and borrow earnings using DLLP in bad times. We also find that bank risk is negatively associated with discretionary accruals.
afshin ahmadi looye; Hashem Nikoomaram; Fraydoon Rahnamay Roodposhti; Bahman Banimahd
Abstract
In the present study, for the first time, we investigate the effect of the right of auditor's choice on the Accruals based Earnings management based on Glaser's choice theory. The findings of the empirical Reviews by the use of OLS regression on a sample of 173 active firms in Tehran Stock Exchange during ...
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In the present study, for the first time, we investigate the effect of the right of auditor's choice on the Accruals based Earnings management based on Glaser's choice theory. The findings of the empirical Reviews by the use of OLS regression on a sample of 173 active firms in Tehran Stock Exchange during the period from 2009 to 2018(1730 year-firm) show that accrual based Earnings management for Roach firms is more than unroach firm. The results of this research for the first time show that the process of selecting an auditor in Iran follows an opportunistic approach. Therefore, the findings of this study can help investors and the stock exchange organization of the country in the field of legislation to deal with opportunistic managers, such as access to stock options of the ROARCH Group. In this study, firstly, by studying the theoretical foundations of the publishing of asset-backed securities and other sources of information, such as guidelines issued by the Capital Markets Authority, the International Institutions and International Financial Institutions' Guidelines, the Primary Model The asset back rating was extracted, and then this model was developed for the purpose of obtaining consensus and Delphi Research methodology was subjected to an expert opinion survey and ultimately the final model of asset-backed securities ranking was presented.
Ali Saghafi; Mozaffar Jamalian Pour
Abstract
Classification shifting announced as new tools for earning management and become new subject for accounting research. In this article, we explore how classification shifting must measure and probe position of this tools in listed companies at Iranian stock exchange. For this purpose we gather data for ...
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Classification shifting announced as new tools for earning management and become new subject for accounting research. In this article, we explore how classification shifting must measure and probe position of this tools in listed companies at Iranian stock exchange. For this purpose we gather data for firms from 2002 to 2014. Research results show that companies used classification shifting as a tools for managing earning. Also, research explore that this tools use in trade off position from other common earning management tools. In fact firms used in order real management, accrual management and lastly classification shifting. In addition, results show that financial crisis is important factor for using this tools
Nezamoddin Rahimian; Mohammad Taghi Taghavifard; Sepideh Javadi Sofiani
Abstract
The main role of financial reporting is the effective transfer of financial information to people outside of the organization in a valid way while being ontime. This way, managers have the opportunity to judge the financial reports. This study aimed to investigate the impact of audit quality incentives ...
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The main role of financial reporting is the effective transfer of financial information to people outside of the organization in a valid way while being ontime. This way, managers have the opportunity to judge the financial reports. This study aimed to investigate the impact of audit quality incentives associated with the change of accruals in companies with high equity valuations. For this purpose, the performance of 184 companies, as a sample, during the time period of 2009-2013 was studied. In this study, the ratio of market price to earnings before extraordinary items and discontinued operations as an excess stock value measure has been used. Also, to analyze the impact of excess stock valuation on real earnings management, multivariate regression analysis considering panel data was used. The results of first hypothesis testing show that there is no significant relation between the size of audit firm and discretionary accruals. However,the results of second hypothesis testing indicate that there is a significant relationship between auditor’s tenure and optional accrual items in companies with high equity valuation. Also, the management motivation to change accruals in companies with high equity valuation is reduced.
Abbas i Aflatooni
Abstract
Some valuation models use the accounting earnings and others use the cash flows as inputs to measure the intrinsic value of stocks. The empirical evidences show that the performance of earnings-based models is generally higher than that of non-earnings-based models. In addition, based on empirical evidences, ...
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Some valuation models use the accounting earnings and others use the cash flows as inputs to measure the intrinsic value of stocks. The empirical evidences show that the performance of earnings-based models is generally higher than that of non-earnings-based models. In addition, based on empirical evidences, earnings management that is done using accruals and real activities manipulation; shift the earnings quality, and using the managed earnings in earnings-based valuation models lead to incorrect results. The first stage of this research that is done on 116 firms listed in Tehran Stock Exchange from 2003 to the end of 2013 compares the performance of Residual Income Model (RIM) and discounted cash flow model (DCF). The second stage compares the performance of mentioned models in suspected and non- suspected firms to earnings management and to control the effects of some variables on results, the regression analyses is applied. The research results show that, although in total sample the performance of RIM is higher than that of discounted DCF, the performance of RIM is significantly lower than that of DCF in suspected firms.
Abstract
Some valuation models use the accounting earnings and others use the cash flows as inputs to measure the intrinsic value of stocks. The empirical evidences show that the performance of earnings-based models is generally higher than that of non-earnings-based models. In addition, based on empirical evidences, ...
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Some valuation models use the accounting earnings and others use the cash flows as inputs to measure the intrinsic value of stocks. The empirical evidences show that the performance of earnings-based models is generally higher than that of non-earnings-based models. In addition, based on empirical evidences, earnings management that is done using accruals and real activities manipulation; shift the earnings quality, and using the managed earnings in earnings-based valuation models lead to incorrect results. The first stage of this research that is done on 116 firms listed in Tehran Stock Exchange from 2003 to the end of 2013 compares the performance of Residual Income Model (RIM) and discounted cash flow model (DCF). The second stage compares the performance of mentioned models in suspected and non-suspected firms to earnings management and to control the effects of some variables on results, the regression analyses is applied. The research results show that, although in total sample the performance of RIM is higher than that of discounted DCF, the performance of RIM is significantly lower than that of DCF in suspected firms.
Ahmad Ahmadpoor; asoomeh hahsavari
Volume 11, Issue 41 , April 2014, , Pages 37-58
Abstract
This study investigates how management Authority of bankrupt firms performs in reporting future profitability and earnings quality effect in Tehran Stock Exchange during 1385-1390. Discretionary accrual is considered as measure of earnings management. Also in this study, it is investigated the effect ...
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This study investigates how management Authority of bankrupt firms performs in reporting future profitability and earnings quality effect in Tehran Stock Exchange during 1385-1390. Discretionary accrual is considered as measure of earnings management. Also in this study, it is investigated the effect of accounting-based earnings attributes on future profitability separately: accruals quality, earnings persistence, earnings predictability, and earnings smoothness. The results of estimating unbalanced panel data technique for 55 firms subjected to bankruptcy of Altman's model show that the Bankrupt companies tend to be opportunistic earnings management. We also find that earnings management performs better than earnings quality in predicting future profitability.
V. Mojtahedzadeh; S. Sadeghi Askari
Volume 8, Issue 31 , October 2010, , Pages 33-60
Abstract
This study examines the impact of earnings management on the value -relevance of financial statement information by considering short-term and long-term discretionary accruals. This study uses valuation framework, developed by Ohlson (1995) and Jones (1991) as basis for developing two distinct models ...
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This study examines the impact of earnings management on the value -relevance of financial statement information by considering short-term and long-term discretionary accruals. This study uses valuation framework, developed by Ohlson (1995) and Jones (1991) as basis for developing two distinct models to examine short-term and long-term discretionary accruals.10 hypotheses have been designed for this purpose. To examine these hypotheses we use the information of 100 companies listed on Tehran - Stock -Exchange during 1383–1387 and Pierson correlation. The results demonstrate that, both Earnings and Book Value have value-relevance information about firms' value. Moreover, earnings management via short-term, long- term and total discretionary accruals reduce value relevance of earnings but value relevance of book value reduce only in presence of earnings management via long-term discretionary accruals.
alireza mehrazin
farokh barzideh
gholamreza kordestani
M. A. Aghaei; A. A. Javan; M. Nazemi Ardakani; E. Mousavi
Volume 7, Issue 25 , April 2009, , Pages 87-103
Abstract
Decision making about capital structure and determining its effectiveness is increasingly important subject in managing of firms. In addition, earnings management is one of the effective factors on capital structure in corporate governance subjects. This study aimed to investigate the impact of earnings ...
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Decision making about capital structure and determining its effectiveness is increasingly important subject in managing of firms. In addition, earnings management is one of the effective factors on capital structure in corporate governance subjects. This study aimed to investigate the impact of earnings management, Profitability ratios and firm size on the capital structure of listed companies of Tehran Stock Exchange (TSE) in the period of 1382-1386. A sample of 125 companies of TSE was taken for research study. For the analysis of data, multiple regression model approach was applied. Gearing ratio was taken as dependent variable whereas absolute discretionary accruals, ROA, ROE, and Size were used as independent variables. The results indicate that absolute discretionary accruals have insignificant effect on dependent variable. According to the results, Size, and ROE have positive Impact on the capital structure of the listed companies in Tehran stock exchange.
Yahya Hassas Yeganeh; Saber Sheri; H. Khosrownejad
Volume 6, Issue 24 , January 2009, , Pages 79-115
Abstract
In order to solve the distrust problem of the moral hazard in information asymmetry issue in capital markets, corporate governance is introduced. This is an assumption that corporate governance results to a healthful life for organizations in a long horizon and protects the stockholders interests. International ...
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In order to solve the distrust problem of the moral hazard in information asymmetry issue in capital markets, corporate governance is introduced. This is an assumption that corporate governance results to a healthful life for organizations in a long horizon and protects the stockholders interests. International organizations and institutes, suggest the governance codes as a tool to develop the competition ability of corporate to access to the international capital sources, and it also affects economic and employment improvements.
This research studied some of the corporate governance mechanisms in TSE and examines the probable correlation between earning management and corporate governance mechanisms, debt ratio and firm size. The current study employs the cross-sectional modified version of Jones, where abnormal working capital accruals are used as proxy for earnings management. The study reveals that corporate governance mechanisms (board size, proportion of independent directors, competence of independent directors, separation of the roles of CEO and chairman, CEO membership, ownership structure and existence of audit dept.) have non-significant relation with earning management. It also shows that debt ratio and firm size have no significant relation with earning management.
Mohamad Arabmazar Yazdi; M. Mostafazadeh
Volume 6, Issue 23 , October 2008, , Pages 1-18
Abstract
This study provides events about the impact of Earnings Management on the Value-Relevance of Earnings and Book Value with comparison of short term and long-term discretionary accruals. According to the result of this study, in Tehran Stock Exchange (TSE), Earnings management reduces the value-relevance ...
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This study provides events about the impact of Earnings Management on the Value-Relevance of Earnings and Book Value with comparison of short term and long-term discretionary accruals. According to the result of this study, in Tehran Stock Exchange (TSE), Earnings management reduces the value-relevance of earnings and increases the value-relevance of book value and also the effect of long-term discretionary accruals on the value relevance of earnings and book value is greater than the effect of short-term discretionary accruals on the value relevance of earnings and book value.
Mohsen Khoshtinat; Morteza Akbari
Volume 5, Issue 19 , October 2007, , Pages 21-49
Abstract
Different information introduced to the market by the listed companies affect share prices in the capital market. Some are used for forecasting and estimation, so its credibility and authenticity is under question. A major problem almost all managers are facing with is that to what degree their earnings ...
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Different information introduced to the market by the listed companies affect share prices in the capital market. Some are used for forecasting and estimation, so its credibility and authenticity is under question. A major problem almost all managers are facing with is that to what degree their earnings forecast is reliable to the capital market, how they are affected by different variables, and how authenticity can be augmented. This article empirically tries to investigate the effect of the factors reviewed by foreign scholars, on Tehran Stock Exchange. The research hypotheses are based on evaluating five factors including type of information (positive or negative), deviation in forecasting (managers credibility), forecast timing, size of the companies, and adjustment or non-adjustment of the forecasted information. Considering the volatility of the share price at the time of projected profit declared by the negative information (a lower forecasted earning) severely makes share price sensitive; unlike positive information which does no draw as much attention of shareholders and brokers as the negative information. Secondly, the size of the listed companies has a wider effect on the investors to accept the projected profit. Thirdly, the materialization of the past forecasts affects acceptance of the future forecasts as well. Fourth, medium-term forecasts values more reaction on share prices rather than the long-term ones. And finally adjustment of the forecasts has no effect on the upcoming forecasts. In short, this study tries to raise the awareness concerning how managers can link their projected future profits to the market.
Yahya Hassas Ycganeh; Narges Yazdanian
Volume 5, Issue 17 , April 2007, , Pages 151-171
Abstract
This research seeks to find an answer to this quest ion ''how do some corporate governance practices affect earning management in Iran?"
The investigated corporate governance principals in this research are: the percentage of institutional investors' ownership, the existence of non-executive directors ...
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This research seeks to find an answer to this quest ion ''how do some corporate governance practices affect earning management in Iran?"
The investigated corporate governance principals in this research are: the percentage of institutional investors' ownership, the existence of non-executive directors i n the board of directors, the absence (non-existence) of executive directors as the chief or ...... of board of directors, the existence or internal auditors.
In this research Jones modified model has been used to determine earning management which is measured by discretionary accruals. For this purpose, the data of l77 firms during the years 1382 to 1384 have been used. The results of this research show that when the percentage of institutional investors' ownership in firms is more than 45%,the earning management decreases. Moreover the results show that there is no meaningful correlation between the existence of non-executive directors in the board of directors, the absence (non-existence) of executive directors as the chief or ...... of board of d i rectors, the existence of internal auditors and earning management.
Hamid Bodaghi; HamidReza Bazaz Zadeh
Volume 5, Issue 17 , April 2007, , Pages 173-212
Abstract
The most investigation of earnings Management literature are about why and how earnings management are done and what the results of this behavior i s. But there have been very few researches on the ways to controlling this. This research pays attention to more and more complete disclosure as an approach ...
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The most investigation of earnings Management literature are about why and how earnings management are done and what the results of this behavior i s. But there have been very few researches on the ways to controlling this. This research pays attention to more and more complete disclosure as an approach for reducing earnings management.
In this research, disclosure quality is prepared and measured, using a check list containing 235 mandatory disclosure items (as Iranian accounting standards). Earnings management is also measured, using modified Jones Model, on discretionary accruals, and are finally used for testing the hypothesis. Hypothesis are tested as cross- sectional for the years 1382 to 1384 and accumulated.
The results in year to year investigations only for the year 1384 show statistically significant negative relationship between disclosure quality and earnings management. And in total of three years, investigations show no significant relationship.
