Profitability
Mandana Taheri; Asma Sajedifar
Abstract
This study investigates the effect of earnings per share (EPS) disclosure pressure on the level of environmental information disclosure among companies listed on the Tehran Stock Exchange, with an emphasis on the moderating role of corporate governance. Using data from 110 firms over the period 2012-2023 ...
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This study investigates the effect of earnings per share (EPS) disclosure pressure on the level of environmental information disclosure among companies listed on the Tehran Stock Exchange, with an emphasis on the moderating role of corporate governance. Using data from 110 firms over the period 2012-2023 and employing a panel data approach, the results indicate that pressure to disclose EPS has a significant negative impact on environmental disclosure levels. Meanwhile, corporate governance mechanisms, through enhanced transparency and oversight, can help mitigate this adverse effect. However, the findings reveal that corporate governance has not been fully effective in moderating the negative influence of EPS disclosure pressure on environmental disclosures. These results provide valuable insights for policymakers and corporate managers aiming to strengthen governance frameworks and improve the quality of environmental reporting.
Introduction
In emerging capital markets, listed firms increasingly operate under dual, and potentially conflicting, pressures: capital market expectations to meet or exceed earnings per share (EPS) benchmarks, and growing stakeholder demands for transparent environmental reporting. While EPS targets sharpen the focus on short-term profitability, they may also create incentives to downplay or delay disclosures that highlight environmental risks and costs. Prior evidence on the relationship between earnings pressure and environmental disclosure is scarce and primarily drawn from developed markets, where regulatory enforcement and governance infrastructures differ markedly from those in developing economies. Against this backdrop, the present study examines whether EPS disclosure pressure reduces the extent of environmental disclosure and explores the potential moderating role of selected corporate governance mechanisms in the context of the Tehran Stock Exchange.
Literature Review
The literature on sustainability reporting highlights environmental disclosure as a primary channel through which firms seek legitimacy, respond to regulatory and societal pressures, and communicate long-term strategic commitments. Studies grounded in legitimacy theory suggest that firms expand environmental reporting when facing public scrutiny, whereas agency-based analyses emphasize that managers may strategically withhold or bias such information if it threatens their private benefits. Research on earnings pressure shows that managers under tight EPS targets may engage in real activities management, accrual manipulation, or selective disclosure to maintain a favourable financial narrative, but only a few studies explicitly link EPS-related pressures to non-financial reporting, particularly environmental disclosure. At the same time, corporate governance characteristics, such as institutional ownership, board independence, and CEO tenure, are argued to constrain opportunistic behaviour and enhance transparency, although evidence from emerging markets indicates that governance structures may be less effective where ownership is concentrated, and investor protection is weak. This study extends the literature by integrating these strands into a single framework and providing evidence from an underexplored institutional setting.
Methodology
The empirical analysis is based on an unbalanced panel of 110 non-financial firms listed on the Tehran Stock Exchange over the period 2012–2024. Environmental disclosure is measured using a six-item checklist applied to annual reports and board of directors’ reports, covering pollution prevention, waste reduction, recycling initiatives, conservation of natural resources, compliance with environmental regulations, and investments in environmentally friendly technologies. The firm-year disclosure index is calculated as the ratio of disclosed items to the total number of items. EPS disclosure pressure is operationalized as a composite index obtained via factor analysis of several proxies that capture both financial dynamics and managerial incentives, including EPS growth pattern and volatility, overinvestment as a proxy for managerial overconfidence, managerial ability scores derived from a data envelopment analysis framework, industry competition measured by a sales-based Herfindahl–Hirschman index, and a market-specific investor sentiment indicator. Corporate governance is captured through a separate factor-based index that combines the presence of institutional blockholders, the proportion of independent directors on the board, and CEO stability, defined as the absence of CEO turnover in the previous two years. Panel regression models with firm and year fixed effects are estimated, controlling for firm size, leverage, profitability, loss status, inventory and receivables intensity, auditor size, audit opinion type, and liquidity. Standard panel-data diagnostics and robust estimation techniques are employed to address multicollinearity, autocorrelation, and heteroskedasticity.
Results
The regression results show a negative and statistically significant association between EPS disclosure pressure and the level of environmental disclosure, indicating that firms exposed to stronger pressure to maintain favourable EPS figures tend to provide less extensive environmental information. This effect remains robust across alternative specifications and after controlling for firm-specific, industry, and time-varying factors. The composite corporate governance index exhibits a positive and significant relationship with environmental disclosure, suggesting that firms with higher institutional ownership, more independent boards, and more stable executive leadership are generally more inclined to report on environmental issues. However, the interaction term between EPS disclosure pressure and the governance index is not statistically significant, implying that the selected governance mechanisms do not materially mitigate the adverse impact of EPS pressure on environmental disclosure. Additional sensitivity analyses confirm that the main inferences are not driven by outliers, alternative variable definitions, or different estimation approaches.
Discussion
These findings suggest that, in the examined emerging-market context, environmental disclosure is treated by managers as a discretionary margin that can be curtailed when the pressure to meet EPS expectations intensifies. From a legitimacy-theory perspective, managers appear to prioritize the short-term legitimacy gained from delivering target EPS over the longer-term legitimacy associated with transparent environmental reporting. From an agency-theory viewpoint, the results reflect a misalignment between shareholders’ broader interest in credible sustainability disclosure and managers’ incentives tied to short-term financial performance. The positive direct effect of corporate governance on environmental disclosure indicates that stronger monitoring and oversight can foster more extensive reporting; yet the lack of a significant moderating effect reveals the limitations of these governance arrangements when confronted with intense EPS pressure. In markets characterized by concentrated ownership, evolving regulation, and relatively weak enforcement, formal governance structures may improve average transparency but remain insufficient to prevent managers from sacrificing environmental communication under earnings stress.
Conclusion
The study contributes to the literature by developing a multidimensional measure of EPS disclosure pressure, focusing specifically on environmental disclosure in an emerging capital market, and assessing the conditional role of corporate governance. The evidence shows that EPS-related pressures systematically undermine environmental transparency, and that conventional governance attributes, while beneficial on average, do not fully counteract this effect. These insights have important policy implications: regulators and standard setters may need to strengthen environmental reporting requirements, refine enforcement mechanisms, and encourage performance evaluation frameworks that balance EPS outcomes with sustainability metrics. Boards and institutional investors should also reconsider compensation and monitoring practices that place excessive weight on short-term earnings targets and pay closer attention to the consistency and completeness of environmental disclosures. Future research could extend this analysis by exploring alternative dimensions of sustainability reporting, employing dynamic panel estimators to better address endogeneity concerns, and conducting cross-country comparisons to examine how institutional differences shape the interplay between earnings pressure, governance, and environmental disclosure.
Audit Risk
Mandana Taheri; Ghasem Blue; Ramin Parvarpour
Abstract
Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information ...
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Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information asymmetry and economic uncertainty in explaining audit fees. The time domain of the research is the period from 2013 to 2021 and the research sample includes 120 companies listed on the Tehran Stock Exchange. Research findings, based on analysis using multivariable regression models on combined data, show that among the macroeconomic variables investigated (including economic growth rate, inflation rate, exchange rate, and interest rate), both economic growth rate and inflation rate have a direct and significant relationship with the audit fee. Additionally, there is a direct and significant relationship between the risk of lawsuits and information asymmetry with the audit fee. The results indicate that the risk of lawsuits, economic uncertainty and information asymmetry play an effective role in explaining auditors' fees. IntroductionAudit fees indicate the amount of auditors' effort to reduce the audit risk to the reasonable level. It is a measure to control financial risk and some legal claims that are threatening audit firms. According to litigation risk, auditors try to control this risk by increasing their efforts and audit fees. Chen (2019) and Frino et al. (2022) state that information asymmetry and economic uncertainty increase audit risk and litigation risk, and can influence audit fees. In other words, audit services are necessitated by the conflict between shareholders and managers. Information asymmetry and economic uncertainty increase agency costs, thereby heightening the necessity for auditing to control and manage these costs. Consequently, auditors increase audit fees to manage audit risks and ensure the thoroughness of their audit work. Therefore, this research aims to explain the effect of litigation risk, information asymmetry, and economic uncertainty on audit fees. MethodologyOur data were collected using financial statements, notes, and audit reports in CODAL[1] database and Rahavard-e-Novin[2] software. The final sample for a period of 2013-2021 consists of 1080 firm-year observations. In addition, the GARCH models were employed to measure the independent variables. To test the first and second hypotheses of this research, model 1 is used:Afeet= litig riskt+ Asymmetryt+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (1)To test the third hypothesis of research, model 2 is used:Afeet= Economic Growtht-1+ Inflation Ratet-1+ Exchange Ratet-1+ Interest Ratet-1+ Sizet+ INVRECt +Levt + ROAt+ losst+ CHANGEt +Adu sizet + Specialistt+ LIQUIDt + SALEt +Year Effects+ Industry Effects (2)Where, SIZE represents the natural logarithm of total assets; INVREC denotes the amount of inventory and receivables divided by total assets; Lev indicates total liabilities divided by total assets; ROA signifies net profit divided by total assets; LOSS is assigned 1 if a firm has experienced a loss in any of the last three years, and 0 otherwise; CHANGE is assigned 1 if a firm has changed its auditor, and 0 otherwise; LIQUID represents current assets divided by total assets; SALE represents the ratio of sales to assets; Adu size is a dummy variable that equals 1 if the audit firm was either the Iran Audit Organization (IAO) or Mofid Rahbar (an audit firm belonging to IACPA), and 0 otherwise. SPECIALISR is assigned 1 if the auditor is an industry specialist, and 0 otherwise. Audit Fee (AFEE): is the natural logarithm of the audit fee.Information Asymmetry (Asymmetry): According to the model of Venkatesh and Chiang (1986).Economic Uncertainty (RM): Economic uncertainty is the inability of agents to accurately predict the outcomes of decisions. In this research, it has been measured by four indicators, including the fluctuation of economic growth, inflation rate, exchange rate, and interest rate. In addition, a GARCH model was used to index these criteria. For this purpose, a volatile measure of changes in the Gross National Product (GNP) index was considered to be an indicator of the risk of macroeconomic factors that the firm faces in its financial and production decisions. The results of the estimation of the GARCH model led to conditional variances, which ultimately lead to the standard deviation or the concept of uncertainty upon taking the square root.Litigation Risk (Litig risk): We measure this variable based on Lowry and Shu (2002), Krishnan and Zhang (2005), and Sun and Liu (2011). ConclusionThe results of testing the first and second hypotheses indicate that the risk of lawsuits and information asymmetry have a positive and significant relationship with audit fees. In the third hypothesis, the effect of lack of economy on remuneration was investigated. In this research, four indicators including economic growth, inflation rate, exchange rate, and interest rate have been used to measure the economic uncertainty of macroeconomic variables. In this regard, the results of the hypothesis testing show that economic uncertainty based on inflation and economic growth criteria has a positive and significant relationship with audit fees. Additionally, economic uncertainty based on interest rate criterion has a negative and significant relationship with audit fees. However, the exchange rate indicator does not have a significant effect on audit fees. Therefore, it can be seen that audit risk as an indicator of determining audit fees is influenced by some economic variables such as inflation and economic growth.In order to strengthen the results and address potential endogeneity in the research models, we redefined the dependent variable as imaginary (bivariate) and re-estimated the initial models of all three hypotheses. The results of these re-estimations confirmed the findings of the least squares regression in the first model for the first and second hypotheses. In the third hypothesis regarding economic uncertainty, economic growth and inflation rate criteria, as well as exchange rate, lead to an increase in the audit fee, while interest rate causes a decrease in the audit fee. Additionally, new control variables were added to the initial models based on the information provided in previous sections. The results of these additions confirm the findings of the initial estimation of the hypotheses.
Financial Accounting
mandana taheri; Mahtab Jafari
Abstract
Investor Sentiment often stem from held-up beliefs or information unrelated to stock value and can lead to extreme reactions or low reactions to good or bad news in stock valuation. In this study, the effect of two important policies of Earning sharing and debt policy in the company that can be investigated ...
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Investor Sentiment often stem from held-up beliefs or information unrelated to stock value and can lead to extreme reactions or low reactions to good or bad news in stock valuation. In this study, the effect of two important policies of Earning sharing and debt policy in the company that can be investigated on the behavior and inclinations of investors and then the Moderating effect of management Entrenchment on the relationship. To achieve the purpose of the research, four hypotheses were developed and data collected from 163 companies listed on the Tehran Stock Exchange during the years 2011 to 2021 were tested through regression models. The findings of this study showed that dividend policy increases investors' Sentiment but debt policy decreases investors' Sentiment. Management Entrenchment strengthens the positive relationship between dividend policy and investor sentiment. Therefore, during the dividend policy, the managers are of the shareholders' goals and want a higher dividend payment ratio. Management Entrenchment also reinforces the negative relationship between debt policy and investor sentiment. Therefore, risk-averse managers tend to use less debt, which is also a favorite of investors; because they invest in companies that have the least debt and their capital structure shows the importance of equity.
Financial Accounting
Ali Rahmani; Gholamreza Solimani; Mandana Taheri
Abstract
Interest groups, especially shareholders have demand for Disclosure and Reporting in the capital market and they change their expectations of risk and return based on disclosure of information. Therefore, disclosure has economic consequence for companies that according to the empirical literature, cost ...
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Interest groups, especially shareholders have demand for Disclosure and Reporting in the capital market and they change their expectations of risk and return based on disclosure of information. Therefore, disclosure has economic consequence for companies that according to the empirical literature, cost of capital, information asymmetry and stock liquidity, there are three important consequences of disclosure and reporting. One of the disclosures of companies is risk disclosure in the capital market, especially for banks and financial and credit institutions which it require in the form of financial statements and the Report of the Board to the Stock Forum based on complies with the regulations of the Stock Exchange and the Central Bank of Iran. In this paper, we survey the effect of risk disclosure in bank listed in stock market on cost of capital, information asymmetry and stock liquidity as three important of risk disclosure consequences. For this aim, by using the annual data of 18 banks listed in Tehran Stock Exchange during the years 1390 to 1395 we estimate simple regression with panel data. The results show the main hypothesis (there is a consequential risk disclosure of the banks listed in the stock market), confirms. In addition, risk disclosure has a positive and significant relationship with cost of capital and information asymmetry, but there is no significant relationship between risk disclosure and stock liquidity.
