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).
Accounting report
Fatemeh Asnad; Hossein Fakhari
Abstract
Nowadays, the importance of water and the management of its resources are among the most controversial issues at the global level due to climate change. This issue is especially important in Iran, which suffers from continuous drought. Therefore, the current research aims to explain the determinants ...
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Nowadays, the importance of water and the management of its resources are among the most controversial issues at the global level due to climate change. This issue is especially important in Iran, which suffers from continuous drought. Therefore, the current research aims to explain the determinants affecting water reporting in the listed companies on the Tehran Stock Exchange. For this purpose, by using the data of 102 companies during the years 2012 to 2021 which were selected by elimination method, the determinants affecting the disclosure of water reporting were identified and analyzed using stepwise regression and multiple regression methods. The results of this research showed that the highest amount of disclosure related to water belonged to chemical and oil industry companies, Additionally, in the investigation of the determinants affecting water reporting, it was found that the determinants affecting water reporting, it was found that the determinants of firm age, board size, financial expertise of the audit committee, concentration of ownership, institutional ownership, return on assets, average annual rainfall, reputation, regulation, and sensitivity of the industry to water had an impact on corporate water reporting. These findings can be useful for planning and controlling water management, as well as for investors to know the drivers of corporate disclosure in forming their optimal portfolio. IntroductionNowadays, the importance of water and the management of its resources are among the most controversial issues at the global level due to climate change. This issue is especially important in Iran, which suffers from continuous drought. Therefore, the current research aims to explain the determinants affecting water reporting in the listed companies on the Tehran Stock Exchange.Research Question(s): What are the determinants influencing the disclosure of water reporting in Tehran Stock Exchange member companies? What is the impact of these determinants on the disclosure of water reporting? Literature ReviewAlthough the limitation of water resources and its serious role in sustainable life and economic activities are not hidden from anyone, with increasing concerns about water and its pollution, and the effects of climate change, how to effectively manage water and report it at the corporate level has become more important. This attention has been such that today the disclosure of water management information and its risks has become part of the strategy and sustainability efforts of companies. Water reporting at the company level is a tool for transferring information about water risks, the effects of risk, and the company's water resources strategy.Multiple theoretical frameworks can be used to justify the necessity of water reporting at the company level and its determinants. These theories are in the same direction and complement each other, such that they are competing theories because all of them are trying to explain corporate water reporting. These theories include legitimacy theory, stakeholders theory, social responsibility theory, and resource-based theory. MethodologyThe population studied in this research comprises the companies that are members of the Tehran Stock Exchange over a period of 10 years from 2012 to 2021, and ultimately, 102 companies (1020 company-years) were selected using the systematic elimination method. The method used in this research to explain the determinants affecting the disclosure of water reporting included five steps: In the first step, the study of literature related to water reporting and the determinants affecting it was conducted. In the second step, a comprehensive review of the literature was carried out by referring to Springer, Wiley, Science Direct, Google Scholar, and ResearchGate databases. The preliminary search identified a number of articles that focused on broad areas of disclosure. The process of studying the abstracts and introductions of the articles led to the exclusion of some out-of-scope studies. After filtering the results, only eight of these articles related to water disclosure were selected. In the third step, a questionnaire was prepared and distributed among experts to confirm and complete the components. This step was used as a complementary method, according to the experts, to confirm and complete the determinants extracted from the literature, taking into account the local conditions of Iran. The fourth step involved finalizing the determinants after reviewing the questionnaires; finally, ten responses were received from the questionnaires sent to the experts, and the questionnaires were tested with the independent t-test method. The results showed that all the determinants included in the questionnaire, except for gender diversity, were approved by the board of directors and the audit committee. In the fifth step, the stepwise regression method was used to examine the effective variables and select the effective stimuli on water reporting, and then the multiple regression method was used to measure the impact of each of the approved stimuli. ResultsIn the stepwise regression method, the dependent variable (water reporting disclosure) and independent variables (firm size, firm age, financial leverage, audit committee size, audit committee financial expertise, independent members of the audit committee, board size, ownership concentration, institutional ownership, government ownership, return on assets, corporate social responsibility, average annual rainfall, GDP growth, reputation, and sensitivity of the industry to water) were selected and, over 10 stages, various regressions were formed and finally, ten independent variables were confirmed. The adjusted coefficient of determination of this regression is equal to 0.322, which has the highest coefficient of determination compared to other models, and the value of the significance level of the model is equal to 0.000, which shows the significance of the model. Finally, in response to the research question of what are the drivers of water reporting in companies, the following variables can be mentioned: firm age, audit committee financial expertise, board size, ownership concentration, institutional ownership, return on assets, average annual precipitation, reputation, regulation, and industry sensitivity to water. Subsequently, to check the impact of each of the factors, the variables selected in the previous step were entered into the regression and analyzed with the multiple regression method. Finally, the regression equation was obtained as follows:WaterDisclosure= -3.327 – 0.620 LnAge + 0.764 BoardSize + 1.450 Concentration + 0.895 ROA + 0.119 Co-financial + 3.191 Reputation – 0.001 Rainy – 0.977 Regulation+ 1.450 Institutional + 0.162 Sensetive DiscussionBy reviewing the literature, it was found that several determinants were effective in water reporting in companies; some of these determinants were related to the structural characteristics of the company, some to the characteristics and ownership structure, and finally to the financial performance of the company. Also, determinants such as the existence of foreign regulation and supervision, the company's attention from major shareholders, and reputation, as well as the level of social responsibility of companies, can lead to more disclosure of water-related information. In this research, in addition to these determinants, some other determinants such as the country's economic growth, annual rainfall, and audit committee characteristics were investigated by interviewing experts. ConclusionAccording to the findings of the research, companies with higher profitability and reputation also have higher disclosure. In addition, the findings suggested that considering there is still no codified and general regulation for water management applicable to all companies in Iran, it is recommended, according to the theory of stakeholders, that legislators and the environmental organization establish specific and enforceable regulations for companies to adhere to and disclose information related to water in their reports. Furthermore, since there is currently a requirement for listed companies to prepare sustainable reporting, providing information on water and how to manage water and its risks can be combined with other information on social activities and governance. This integration of reports will enable better monitoring for policy-makers and foster collaboration among stakeholders for responsible water management and achieving sustainable goals at both the corporate and global levels.
Mohammad Jafar Zivari Kamran; Hossien fakhari
Abstract
This paper is intended to provide a pattern for effective internal audit function and to recognize its components. The considered statistical group of this research includes experienced managers in public companies, members of audit committees and managers of auditing firms. This research is a descriptive-probative ...
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This paper is intended to provide a pattern for effective internal audit function and to recognize its components. The considered statistical group of this research includes experienced managers in public companies, members of audit committees and managers of auditing firms. This research is a descriptive-probative one and its purpose is fundamental. Theme analysis method was adopted in order to analyze qualitative data gathered from interviews. Coding process was performed in three separate phases of inputs, processes and outputs. According to results of theme analysis, identified components of an effective internal audit function categorized in Input phase were providing resources and facilities, independence of internal audit, transparency of information system, codified governance system of company, professional competency of employees and human resources policies. Also, components categorized in process phase were risk management, performance assessment, control approaches, promotion of internal auditors' skills, organizational relations and accordance to modern evolutions were recognized. In output phase, identified indicators of an efficient internal audit function were reporting quality, effectiveness of internal control systems and economic efficiency of internal audit activities. Finally, in order to examine the model from beneficiary’s perspective, current status of internal audit function was assessed. The results of single sample T test showed that effectiveness of internal audit is quite low in input phase. On the other hand, effectiveness of internal audit was rather medium favorable in process phase and normal favorable in output phase.
Hossien Fakhari; Javad Mohammadi; Mohsen Hasannataj Kordi
Abstract
The novelty and mandatory rules about establishing of the auditcommittee in Iranian listed companies as one of the important part ofcorporate governance are controversial subject. It has been importantespecially when the real earnings management is involved. It is due to thepossibility of the detection ...
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The novelty and mandatory rules about establishing of the auditcommittee in Iranian listed companies as one of the important part ofcorporate governance are controversial subject. It has been importantespecially when the real earnings management is involved. It is due to thepossibility of the detection of real earning management that is low incomparison with accrual earning management. In companies this researchintend to investigate about audit committee characteristic and real earningmanagement in Iranian listed companies. So we gather data about 112 listedcompanies of TSE during 1392 year and analysis them with cross-sectionalregression.In general our findings show that there is a significant relationshipbetween audit committee characteristics and real earnings management. Alsoour findings help to TSE policy maker for reporting and enforcement ofaudit committee charter. It indicates also that there is a vital need forapplying of corporate governance rules in Iranian listed companies
