Financial Accounting
Abas Aflatooni; Mohamad Khatiri
Abstract
Recent research has increasingly focused on earnings management through the classification shifting of income statement items. However, domestic studies have only minimally addressed this topic. While international research has extensively examined the impact of the COVID-19 pandemic on earnings management, ...
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Recent research has increasingly focused on earnings management through the classification shifting of income statement items. However, domestic studies have only minimally addressed this topic. While international research has extensively examined the impact of the COVID-19 pandemic on earnings management, there is a notable lack of empirical evidence concerning Iranian firms. This study investigates the presence of earnings management through classification shifting in Iranian firms, comparing the phenomenon during the COVID-19 outbreak with other periods. The analysis utilizes data from 137 firms listed on the Tehran Stock Exchange, covering 2012 to 2023, resulting in 1,644 observations. The models are estimated using the generalized least squares (GLS) approach, controlling for year and industry effects. The findings confirm the existence of earnings management through classification shifting among Iranian firms. Moreover, the results indicate that this practice intensified during the COVID-19 pandemic compared to other years. Robustness tests, which employed different time frames for the pandemic and decile-ranked values for research variables, corroborate the study's main findings.
َAccruals Quality
Abbas Aflatooni; Kefsan mansouri; Zahra Nikbakht
Abstract
The accounting information quality and its relationship with financing decision-making is one of the important issues that attract interest from researchers. However, the way accounting information quality affects financing costs during the COVID-19 pandemic is a topic that has not been explored in domestic ...
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The accounting information quality and its relationship with financing decision-making is one of the important issues that attract interest from researchers. However, the way accounting information quality affects financing costs during the COVID-19 pandemic is a topic that has not been explored in domestic research. The purpose of this research is to investigate the effect of the accounting information quality on the cost of debt and to explore how this effect mainfested during the pandemic of COVID-19. In this regard, the data from 137 firms listed on Tehran Stock Exchange for 2012-2022 (1057 firm-years) have been analyzed. The generalized least squares (GLS) approach was employed to fit the models and fixed effects for years and industries were also controlled. The research results for the entire period demonstrate that an increase in accruals quality (as a proxy for accounting information quality) leads to the cost of financing through debts and this decrease is more pronounced for innate accruals quality than for discretionary accruals quality. Furthermore, the findings suggest that during the period of the COVID-19 pandemic, the impact of accruals quality and its innate and discretionary components on the cost of debt diminished. The results of the robustness tests using decile-ranked values of accruals quality support the main findings.IntroductionThe global pandemic of COVID-19 and the economic recession related to it brought many challenges to companies in most countries (Barai & Dhar, 2021). Due to the widespread effects of this disease and the various and costly measures taken by countries to control this pandemic, during the outbreak of COVID-19, the economic activities of companies faced a serious challenge (Aljughaiman et al., 2023). COVID-19 had a significant negative impact on the employment level of the workforce, reduced economic activity, and created high levels of uncertainty in many financial markets (Zhang et al., 2020). These conditions have most likely hurt the accounting information quality (Pham et al., 2023; Chen et al., 2023) and due to the inverse relationship between the accounting information quality and the cost of debt, it has led to an increase in the cost of debt. However, most of the empirical evidence in this regard is related to developed countries such as the United States, the United Kingdom, and Australia, and the evidence on emerging markets (such as the Iranian capital market) is limited in this regard. Therefore, this study aims to investigate the relationship between the accruals quality and the cost of debt and to compare the extent of this relationship during the COVID-19 pandemic and other years.Literature ReviewIn accounting, accruals refer to a part of earnings that does not carry cash flow and is a product of the accrual accounting system. Therefore, accruals represent the difference between earnings and cash flows (Nallareddy et al., 2020). Since accruals are affected by managerial discretion, the accruals quality can be used to evaluate the accounting information quality and predict future cash flows (Le et al., 2021). The COVID-19 pandemic has significantly affected the global economy (Zhu & Song, 2021), involved many businesses in financial difficulties (Albitar et al., 2020) and intensified their dependence on resources provided by creditors and investors (Shen et al., 2020). Most likely, these conditions have affected the accounting information quality (Pham et al., 2023). During the COVID-19 pandemic, most companies have had enough motivation for earnings management (Lassoued & Khanchel, 2021). However, earnings management causes the financial information reported by companies to be inconsistent with their actual situation, and this means reducing the accounting information quality (Tariverdi et al., 2012). According to these materials, the research hypotheses are presented as follows:H1: An increase in the quality of accruals causes a decrease in the cost of debt.H2: In the period of the COVID-19 pandemic, the intensity of the effect of accruals quality on the cost of debt has decreased.MethodologyThis research is practical, analytical, quasi-experimental, correlational in terms of research purpose, and retrospective and post-event in terms of the time dimension of the data. To collect financial and accounting data, Rahvard Novin database and reports published on Codal website were used, and Stata software was used to analyze the data. To fit the models, the generalized least squares approach was used.ResultsThe results show that compared to other years, during the COVID-19 pandemic, the accruals quality (the cost of debt) has decreased (increased) by 27% (35%). Also, the results indicate that an increase in accruals quality decreases the cost of debt. Furthermore, our results show that compared to other years, during the COVID-19 pandemic, the intensity of the effect of the accruals quality on the cost of debt has decreased.DiscussionThe research findings show that an increase in accruals quality significantly decreases the cost of financing. So, in order to reduce financing costs from debts, managers are advised to be diligent in improving the companies' accounting information quality. Finally, our results show that the cost of debt has increased during the COVID-19 pandemic, due to the decline in accruals quality and its components.ConclusionOur results show that with the increase in the quality of accruals, the cost of financing through debts has a significant decrease, and this decrease is more for the innate components of accruals quality than for its discretionary part. In addition, the findings indicate that during the COVID-19 pandemic, the intensity of the effect of the accruals quality and its innate and discretionary components on the cost of debt has decreased. The results of supplementary tests confirm the research main findings.
Financial Accounting
Abbas Aflatooni; Zahra Nikbakht; Kefsan Mansouri
Abstract
The existence of firms' excess cash causes resources to stagnate and, cash deficit causes loss of investment opportunities. Therefore, firms generally try to maintain an optimal level of cash holdings. In addition, firms attempt to quickly correct any deviations from the optimal level of cash holdings. ...
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The existence of firms' excess cash causes resources to stagnate and, cash deficit causes loss of investment opportunities. Therefore, firms generally try to maintain an optimal level of cash holdings. In addition, firms attempt to quickly correct any deviations from the optimal level of cash holdings. The level of cash holdings and the speed of correcting the gap between the actual and the optimal level of cash holdings depend on several factors. The purpose of this study is to investigate the effect of the firm's business strategies (defenders and prospectors) on the level of cash holding and its speed of adjustment. In this regard, the data of 120 firms listed on the Tehran Stock Exchange (TSE) during 2013-2020 (960 firm-years) have been used. The static models are estimated using ordinary least squares (OLS) estimator and, the system generalized method of moments estimator (GMM) is used to estimate dynamic models. The results show that the prospectors have a smaller cash holdings ratio than defenders, and also, the prospectors have lower cash holdings speed of adjustment than defenders. The results of supplementary tests that confirm the research's main findings are consistent with the predictions made in trade-off theory.
Abbas Aflatooni; Zahra Nikbakht
Abstract
One of the firms’ tools to provide a low-risk image is adopting a persistent dividend policy. However, it should be noted that due to financial constraints, many firms are unable to implement this policy in the long run. This research investigates the role of earnings quality in adopting a persistent ...
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One of the firms’ tools to provide a low-risk image is adopting a persistent dividend policy. However, it should be noted that due to financial constraints, many firms are unable to implement this policy in the long run. This research investigates the role of earnings quality in adopting a persistent dividend policy in 148 firms listed in Tehran Stock Exchange (TSE) (includes 1628 observations) during 2007-2017. To measure earnings quality, I use five proxies and to investigate their role in adopting a persistent dividend policy, I employ partial adjustment model and dividends adjustment speed concept. To estimate the models, I apply the Generalized Method of Moments (GMM) with system estimator. The research results show that compared with other firms, firms with lower total accruals, lower discretionary accruals, higher accruals quality, smoother earnings and higher overall earnings quality, are more able to conduct a persistent dividends policy. The research results using differenced-GMM estimator confirm the research primary results. These findings are consistent with the predictions of the signaling theory
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.
