Financial Accounting
Marzieh Poursaedi; Mahmood Hematfar; , Seyed Enayatallah Alavi; Roya Nasirzadeh
Abstract
The purpose of this research is modeling the detection of firms financial fraud under the implementation of artificial neural network's evaluation algorithms. In this study, efforts have been made by using Quadratic Programming "QP" processes in artificial neural network algorithms to determine the basic ...
Read More
The purpose of this research is modeling the detection of firms financial fraud under the implementation of artificial neural network's evaluation algorithms. In this study, efforts have been made by using Quadratic Programming "QP" processes in artificial neural network algorithms to determine the basic algorithm in the first place and choose the technical parameters of the artificial neural network in the second place, based on the time data from 2013 to 2022, through several stages. Then, by developing a diagnostic model based on two test and control scales, innovative algorithms that have the highest accuracy coefficients in predicting the accuracy of financial fraud should be investigated at the level of capital market companies. Therefore, based on the systematic sampling process, 95 stock exchange companies were selected, so that based on 950 observations (company-year), the distance between companies with financial health and companies with the possibility of financial fraud was determined through decimalization and the companies placed in the deciles with financial fraud should be examined through the parameters of the artificial neural network's usefulness. The results of the study showed that the unsupervised learning algorithm, which includes a set of evaluation parameters based on meta-heuristic algorithm, has higher accuracy of predictions based on the fulfilled data. Also, the results of predicting the financial frauds of decimated companies based on two selected algorithms, genetic and bee colony, show that the bee colony algorithm has a higher accuracy factor in predicting the probability of fraud of the investigated companies.
Financial Accounting
Tayebeh Gharibi; Naamat Rostami Mazouei; Azar Moslemi; Masoud Tahernia
Abstract
The purpose of this research is the framework of digital assets accounting and the evaluation of the axes identified based on mutual matrices. The methodology of this study is in the category of exploratory and developmental research, which by combining the process of data collection in the qualitative ...
Read More
The purpose of this research is the framework of digital assets accounting and the evaluation of the axes identified based on mutual matrices. The methodology of this study is in the category of exploratory and developmental research, which by combining the process of data collection in the qualitative and quantitative part, first seeks to provide a theoretical framework based on the approach of Glazer (1992) in the process of ground theory and Secondly, in order to determine the most effective central component of digital assets accounting implementation, the interpretive ranking process is also used. The results of the qualitative part of the study during the 12 interviews conducted indicate the identification of 4 categories, 5 components and 25 conceptual themes, which provided the theoretical framework of the investigated phenomenon by confirming the reliability of the main axes of the study through Delphi analysis. The results of the quantitative part of the study also showed that the central component of compliance with the internal controls of digital assets "J4" is the most important mechanism for implementing the accounting of digital assets in the context of capital market companies, which can strengthen the information capacities of users.
Financial Accounting
Pouyan Mohammadi; hamideh asnaashari; MohammadHosien SafarZade
Abstract
The purpose of financial reporting is to present commercial realities. Meanwhile, there is growing concern about the complexities involved in financial reporting. To this end, the present study set out to explain the complexity pattern of financial reporting by drawing upon a grounded theory approach. ...
Read More
The purpose of financial reporting is to present commercial realities. Meanwhile, there is growing concern about the complexities involved in financial reporting. To this end, the present study set out to explain the complexity pattern of financial reporting by drawing upon a grounded theory approach. The statistical population of the study includes 26 experts in the field of financial reporting. The data for the research were collected using semi-structured interviews. The findings identified the complexity of financial reporting as encompassing 12 causes: understanding the concept of complexity, preparers' knowledge, the company's capital structure, cooperation between institutions, the standard-setting body, the legislative body, the accounting standards, the structure of internal controls, the company's financial position, the company's board of directors, the auditors' skills, and the users' ability to identify it as causal conditions. Then, according to the contextual conditions (macro, industry, company, and reporting structure) and intervening conditions (informing practices, characteristics of the Chief Financial Officer, macro factors, and new technologies), several strategies (appropriate report format, appropriate standardization, application of laws and regulations, and empowerment of human resources and control structure) were developed. Afterward, the consequences, including outcomes at the macroeconomic level, expense reduction, company level, societal level, international level, and report level, were determined, and the final pattern was presented accordingly.IntroductionFinancial statements should contain sufficient detail to help users analyze and evaluate the company’s performance results and financial position in order to make informed economic decisions (Mutiso & Kamao, 2013). The complexity of financial statements indicates the increasing difficulty in understanding, interpreting, and predicting financial statements (Filzen & Peterson, 2015). Glassman (2006) states that the main concern regarding the complexity of financial reporting is that if financial statements are complex and distort business and economic reality, capital will be used inefficiently, resources will be misallocated, investors will pay a high opportunity cost by investing in companies with unrealistic values, customers and suppliers will make important and strategic business decisions based on a flawed picture of economic reality, creditors will not be able to price loans according to the real risk assumed, and employees will make employment, retirement, and investment decisions based on an incorrect view of the employer's financial outlook. Complexity in financial reporting has many negative consequences for users of financial reports. Given the increasing complexity of the business environment and consequently of financial reports, in such circumstances, users need understandable reports on which they can make informed decisions. Providing a comprehensive model of financial reporting complexity can help users of financial reports reduce the level of complexity they face. Therefore, the problem addressed in the present study is the lack of such a comprehensive model. The main questions that arise are: What are the complex areas of financial reporting? What factors cause financial reports to become complex? And what is the comprehensive model of financial reporting complexity?Research QuestionsWhat is the comprehensive model of factors affecting the complexity of financial reporting?Literature ReviewManagers may structure annual reports opportunistically and intentionally complicate financial reports in order to hide negative information from investors. When a company’s performance is poor, managers have an incentive to present information in an ambiguous manner, as the market may react slowly to information that is disclosed in a complex way. In other words, managers tend to obscure undesirable information by presenting complicated and ambiguous reports. In fact, they may attempt to conceal poor performance by increasing the volume of unnecessary information in annual financial reports. According to the management obfuscation hypothesis, managers present information they are reluctant to disclose in an ambiguous and incomplete manner to reduce the users' understanding of financial reports (Li, 2008). Existing accounting standards provide rules and guidelines on how companies should report. However, management still has discretion in deciding how to present financial information. Based on the opportunistic perspective of the positive accounting theory, managers choose the reporting method that suits their personal interests. As a result, they may publish financial information in a way that misleads investors (Pajuste et al., 2020). The Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Securities and Exchange Commission (SEC) have all proposed projects to simplify and reduce the amount of information disclosed in financial reports. The Chairman of the FASB, Russell Golden, stated that “overly complex financial statements often hide important information that investors need to make appropriate decisions about capital allocation. A complex, opaque, and ambiguous standard also makes it difficult for preparers of financial statements to understand it, and even when an accounting procedure is clear, its use can be long, difficult, and costly” (Murphy, 2015).Research MethodologyThe present study is descriptive in terms of its fundamental purpose, descriptive in terms of data collection, and qualitative in nature, using the grounded theory method to analyze the data. Grounded theory refers to a theory derived from data that has been systematically collected and analyzed during the research process, involving a continuous back-and-forth between the data and emerging insights (Khanifar & Moslemi, 2019). This study develops and presents a comprehensive model of financial reporting complexity that includes causal factors, contextual factors, intervening factors, strategies, and consequences. It is also a cross-sectional study, as the interviews were conducted in 2024.Results and DiscussionThe findings showed that the financial reporting complexity model consists of 30 components. Causal factors affecting the complexity of financial reporting include understanding the concept of complexity, preparers' knowledge, the company's capital structure, cooperation between institutions, the standard-setting body, the legislative body, the accounting standards, the structure of internal controls, the company's financial position, the company's board of directors, the auditors' skill, and the users’ ability. Contextual conditions include the macro context, industry context, company context, and reporting structure context. Intervening conditions include informing practices, characteristics of the Chief Financial Officer, macro factors, and new technologies. Strategies to reduce the complexity of financial reporting include adopting an appropriate report format, appropriate standardization, application of laws and regulations, and empowerment of human resources and the control structure. Finally, the consequences, including the outcomes at the macroeconomic level, expense reduction, company level, societal level, international level, and report level, were identified, and the final model was presented accordingly.ConclusionGiven the lack of a uniform definition and understanding of the complexity of financial reports, this has been identified as one of the causal factors affecting the complexity of financial reports. The second causal component is the preparers’ knowledge of financial reports. The more specialized knowledge (in accounting and finance) and experience financial managers possess, the clearer and less complex the financial reports are. Financial managers with greater knowledge and experience tend to make more appropriate and understandable disclosures in financial reports. The third causal component is the company's capital structure. It is expected that private companies and those not accountable to a wide range of stakeholders will publish more complex financial reports. In contrast, companies that are accountable to various stakeholders are subject to greater scrutiny, encouraging preparers to produce more transparent reports. The fourth to seventh components include the lack of cooperation between different institutions, the standard-setting body, the legislative body, and the accounting standards, respectively. Cooperation among institutions involved in financial reporting can reduce complexity, by fostering a unified disclosure framework across all industries. In addition, some accounting standards and areas are inherently complex (ACCA, 2009), for example, Hedge Accounting (IAS39), Share-Based Payments (IFRS2), and Pension Accounting (IAS19). The eighth component is the structure of internal controls. Companies with strong and well-designed internal control systems tend to present more transparent financial reports. The ninth component is the company's overall financial situation. Companies facing unfavorable financial conditions may manipulate their reports to appear more stable. The tenth component is the company's board of directors. In companies where the board members possess relevant knowledge, education, and accounting experience, financial report monitoring is generally more effective. The eleventh component is the auditors' skills. Auditors with higher levels of education and expertise are expected to examine financial reports more rigorously and ensure compliance with disclosure guidelines and accounting standards. The twelfth component is the users’ ability. If users of financial reports have higher education and possess up-to-date knowledge in various fields, particularly in finance and accounting, they are more likely to understand and analyze financial reports effectively. As a result, the perceived complexity of the reports is reduced for them.
Financial Accounting
Kambiz Taghipour; Naghi fazeli; Arezoo Khosaravani
Abstract
The purpose of this study is to examine perspectives on intertextuality in the disclosure of comprehensive information for stakeholders using a mathematical functions matrix. This study is applied in terms of the type of results, and from the standpoint of its objective, it falls within the category ...
Read More
The purpose of this study is to examine perspectives on intertextuality in the disclosure of comprehensive information for stakeholders using a mathematical functions matrix. This study is applied in terms of the type of results, and from the standpoint of its objective, it falls within the category of exploratory research conducted through both quantitative and qualitative models. The study does not follow a single research method but instead adopts distinct methods to address each research question, depending on the area of inquiry. Therefore, based on the nature of data collection, this study can be classified as a mixed-methods approach. The results of the qualitative phase revealed 6 factors for evaluating intertextuality in disclosing comprehensive information at the capital market level, which were confirmed through Delphi analysis. Subsequently, two of these 6 factors were selected as the basis for scenario planning. Through thematic analysis, 9 related sub-factors were identified. IntroductionIn financial markets, attention to information disclosure is considered a strategic mechanism in financial reporting, reflecting the level of corporate responsibility to stakeholders in a competitive environment. Although disclosure requirements typically play an important role in ensuring the uniform provision of information to stakeholders, in competitive markets, companies with greater capacity to gain a competitive advantage are often able to disclose more discretionary information. This enables them to capture a larger share of the market. Such differences are usually linked to the information needs arising from both the market and social environments. These needs vary based on how a company is recognized and valued, which in turn can shape a new identity and enhance the company’s legitimacy. Literature ReviewThe purpose of financial reporting, as proposed by the International Accounting Standards Board (IASB), is to support all functional aspects that benefit stakeholders by ensuring comparability, relevance, and reliability, key characteristics of high-quality accounting information. Over time, with the development of financial reporting standards, comparability of financial statements has come to be recognized as a fundamental component of these standards. In this regard, the International Financial Reporting Standards (IFRS) emphasize that facilitating the comparability of financial statements enhances the efficiency of resource allocation by investors and improves the quality of their decision-making. MethodologyIn terms of results, this study falls under developmental research. Due to the absence of a coherent theoretical framework regarding the function of intertextuality in disclosing comprehensive information to stakeholders, the study first aims to construct an integrated theoretical framework through thematic analysis. This framework is intended to help determine future directions for this topic within accounting knowledge, using a set of scenario-based processes. In terms of its objectives, the study is exploratory in nature. Through three stages of coding, basic, organizing, and overarching, it seeks to identify core themes and expand the functional role of intertextuality in disclosing comprehensive information to stakeholders, particularly within capital market companies. Philosophically, this study is positioned at the intersection of voluntarism in worldview philosophy and structuralism in the philosophy of science. Accordingly, the underlying research approach combines inductive and comparative reasoning. ResultDue to the emerging role of intertextuality in disclosing extensive information to stakeholders, there was no coherent framework for this concept within accounting knowledge, particularly one aimed at enhancing the comparability of financial statements for stakeholders. Therefore, this study sought to identify the organizing themes of intertextuality using thematic analysis. To begin, a review and critical evaluation of related research were conducted, followed by a content screening of selected texts. Once the relevant studies on intertextuality were identified, their organizing themes were extracted. Six main themes were identified. In the next step, the internal relationships among these themes were analyzed using a pairwise comparison matrix. This allowed for the determination of inputs and outputs within the MiM-Mak matrix, ultimately identifying the most influential drivers of the intertextuality function in disclosing comprehensive information for specific stakeholder groups. Subsequently, two core criteria, risk convergence intertextuality, and conditional intertextuality, were identified as key causal dimensions of the concept. Through interviews, a total of 9 sub-criteria (basic themes) were extracted. In the following stage, a matrix of mutual relationships was constructed to identify all relevant scenarios regarding intertextuality in information disclosure. Since the aim was to enhance the value of inclusive information for stakeholders, only two desirable scenarios were selected for integration with dimensions of corporate legitimacy to form the mathematical functions matrix. Finally, in response to the fourth and fifth questions, the most significant scenario for advancing the intertextuality function in disclosing comprehensive information was identified as the sinusoidal scenario– also referred to as the operational intertextuality scenario. This scenario was found to result in the most critical outcome of legitimacy: moral legitimacy for the company. DiscussionAnalysis of the results indicates that the most significant perspective of intertextuality in disclosing comprehensive information to stakeholders is the operational intertextuality matrix. This matrix reflects a high level of company focus on the convergence of risk disclosure, alongside a relatively low presence of conditional intertextuality in current disclosure practices. In other words, to generalize information disclosure through intertextual procedures, the capital market must promote greater convergence in risk-related disclosures. This enhancement would help build investor and stakeholder trust by providing detailed, transparent accounts of risk. Within the matrix, companies that deliver timely and complete information attempt to manage their risk profiles more effectively than competitors and isolate those risks that may pose greater harm. This approach allows companies to demonstrate their stability in the face of shifting expectations among financial decision-makers, thereby strengthening their moral legitimacy. As the findings confirm, moral legitimacy represents the most important outcome of the operational intertextuality perspective in disclosing comprehensive information to stakeholders. ConclusionThe findings from the quantitative phase revealed that the most important scenario for developing the intertextuality function in the disclosure of comprehensive information is the sinusoidal scenario– also referred to as the operational intertextuality scenario. This scenario leads to the most significant outcome for companies: the achievement of moral legitimacy.
Financial Accounting
Ebrahim Madanpisheh; Mohammadreza Abdoli; Maryam Shahri; Mehdi Safari Gerayli; Hasan Valiyan
Abstract
This study attempts to create a management accounting framework using a Six Sigma approach and evaluate the identified dimensions. The method used in this research is grounded theory in the qualitative phase and an evaluation of the identified dimensions in the quantitative phase. The study's data collection ...
Read More
This study attempts to create a management accounting framework using a Six Sigma approach and evaluate the identified dimensions. The method used in this research is grounded theory in the qualitative phase and an evaluation of the identified dimensions in the quantitative phase. The study's data collection was conducted over a period of 6 months, and the tools used were interviews and questionnaires. In the first stage of the study, scholars in the field of management accounting participated through interviews. In the next stage, specialized members from companies listed on the Tehran Stock Exchange commented on the evaluation of the identified dimensions. The results of the qualitative section led to the development of an octagonal theoretical framework that interprets the central phenomenon of the study. In the second phase, the most central criterion identified—profit analysis—was selected. The results obtained can enhance the analytical depth of corporate accountability functions to stakeholders.IntroductionAccounting is a changing phenomenon, where both management accounting and financial accounting activities, applied sciences, and concepts are continuously evolving and redefining themselves, increasingly converging into interconnected realities. Modern organizations are becoming more complex due to rapidly changing and highly competitive environments. Globalization, economic liberalization, technological advancements, and interconnectivity have made the survival of organizations more challenging than ever before. Markets are becoming more international, dynamic, and customer-driven. Customers are demanding more variety, better quality, and improved service, including greater reliability and faster delivery. Changes in the business environment emphasize the need for complete, transparent, reliable, and accurate information that can be accessed quickly. In this context, organizations must respond more innovatively in management accounting. It should aim at value creation and at developing and sustaining competitive advantages. Furthermore, current resource planning and computer-assisted design and manufacturing have cast doubt on the effectiveness of traditional management accounting techniques. Literature ReviewThe evolution of management accounting practices can be traced through various stages, each characterized by distinct paradigms, methodologies, and theoretical frameworks. Early research in management accounting predominantly emphasized cost-based approaches such as standard costing, budgeting, and variance analysis. However, the limitations of these traditional techniques in capturing non-financial performance metrics and supporting strategic decision-making led to the emergence of new management accounting practices. The evolution of management accounting reflects the dynamic nature of modern business environments, characterized by increased complexity, uncertainty, and globalization. Organizations are continuously seeking innovative ways to adapt their management accounting systems to meet the changing needs of internal and external stakeholders. This underscores the importance of understanding how management accounting practices have evolved over time and the factors driving these changes.MethodologyThis study is categorized as a two-phase research project supported by an exploratory methodology. In this process, grounded theory is used to identify the criteria of the central phenomenon. Then, in the second phase of the study, a questionnaire is employed to assess the dimensions of the identified phenomenon. This approach enables the research to construct a strategic map within the company, through which managers, using technical and strategic models, can more effectively achieve sustainability. ResultThe results of the qualitative phase led to the creation of an octagonal theoretical framework that interprets the central phenomenon of the study. In the second phase, the most central criterion identified—the profit analysis criterion—was selected. The results contribute to enhancing the analytical depth of corporate accountability functions toward stakeholders. DiscussionThe findings suggest that management accounting has evolved from a focus on cost determination to a more strategic and holistic approach aimed at supporting organizational objectives. However, the review also identifies several areas for further research and exploration. Future studies may delve deeper into emerging trends such as digitalization, sustainability accounting, and the integration of financial and non-financial performance metrics. Additionally, there is a need for research examining the implications of management accounting practices on organizational performance, decision-making processes, and stakeholder relationships. By addressing these research gaps, scholars can contribute to advancing knowledge and informing practice in the field of management accounting, ultimately enhancing organizational effectiveness and competitiveness in today's dynamic business environment. ConclusionThe recent trend in management accounting has shifted from history-based, temporary planning and control to future-oriented strategic planning and control. The evolution of management accounting is driven by the pressures of increasingly intense competition, technological advancements, the dominance of financial accounting, and the expanding role of management accounting. Information technology can facilitate, catalyze, motivate, or even reshape the convergence of management accounting with financial accounting, both within the technical and technological domains, as well as in behavioral and organizational contexts.
Financial Accounting
Abbas 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, ...
Read More
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. IntroductionResearch on earnings management surged following Enron's collapse in 2003, focusing on accrual-based earnings management, real earnings management, and classification shifting. Managers use accruals, manipulate business activities, and reclassify income statement items to influence reported earnings. Most studies have concentrated on accrual-based and real earnings management, with limited attention given to classification shifting.The COVID-19 pandemic profoundly impacted earnings management by increasing financial distress and firms’ reliance on external resources, thereby motivating firms to present more favorable financial images. While evidence from developed countries highlights the pandemic's impact on earnings management, research on Iranian firms remains scarce.This study aims to fill this gap by examining classification shifting among Iranian firms and assessing the influence of COVID-19. It contributes to the earnings management literature by providing empirical evidence of classification shifting in the Iranian context. Furthermore, it enhances the existing literature on the impact of macroeconomic events and crises by demonstrating the intensifying effect of COVID-19 on classification shifting. In light of the above, the objective of this research is to examine the impact of COVID-19 on earnings management through the classification shifting of income statement items.Literature ReviewAccording to McVay (2006) and Saghafi and Jamalianpour (2018), managers can unexpectedly increase operating income by reclassifying operating expenses as non-operating expenses and non-operating income as operating income, thereby reporting lower non-operating income. In fact, a positive relationship between the size of the reduction in non-operating income and the increase in unexpected operating income can indicate the existence of classification shifting aimed at earnings management. On the other hand, since the phenomenon of earnings management has intensified during the COVID-19 pandemic (Deloitte, 2020; Chen et al., 2023), it is predicted that the COVID-19 outbreak will strengthen the positive relationship between the size of the reduction in non-operating income and the increase in unexpected operating income. To examine this issue, the first hypothesis of the research is formulated as follows:Hypothesis I: With the outbreak of COVID-19, the positive relationship between the size of the reduction in non-operating income and unexpected operating income for the current year is strengthened.There might be ambiguity regarding whether the positive relationship between reduced non-operating income and unexpected operating income is due to actual economic changes or opportunistic managerial behavior (McVay, 2006). McVay (2006) clarifies that if opportunistic classification shifting increases operating income in one year, it will not do so the following year if not repeated, leading to lower unexpected operating income. Conversely, if the change is due to real economic factors, the increase will persist. A negative relationship is expected between reduced non-operating income and changes in unexpected operating income the following year, an effect that may be intensified by COVID-19 (Taylor et al., 2023). The second research hypothesis is formulated to examine this:Hypothesis II: With the outbreak of COVID-19, the negative relationship between the size of the reduction in non-operating income for the current year and changes in unexpected operating income for the following year is strengthened.MethodologyIn this study, data were collected from the Rahavard Novin database and Codal website and analyzed using Stata software. The generalized least squares (GLS) approach was used to estimate the models while controlling for the fixed effects of years and industries. Clustering correction at the firm level was applied to control for heteroscedasticity and autocorrelation of errors. Rank-decile values of variables were used in robustness tests to control for outliers and non-linear relationships. The statistical population included all firms listed on the Tehran Stock Exchange from 2012 to 2023, excluding those in insurance, banking, financial investment, holding, and leasing industries. Firms with fiscal years ending in March and no changes during the study period were selected, resulting in 137 firms (1,644 firm-years) across 13 industries. Data from three prior periods (2009-2011) were also used, with variables winsorized at the 1st and 99th percentiles.ResultsThe results indicate that, with the outbreak of COVID-19, both the positive relationship between the size of the reduction in non-operating income and unexpected operating income, and the negative relationship between the size of the reduction in non-operating income and changes in unexpected operating income, have been strengthened. These results are consistent with the first and second hypotheses of the research, respectively.DiscussionWhile academic literature often focuses on earnings management through discretionary accruals and real business activities, it has largely overlooked classification shifting. Domestic research in this area is also scarce. The first part of this study indicates that classification shifting is common among Iranian firms. Although studies in developed countries show COVID-19's impact on accrual-based and real earnings management, there is limited empirical evidence from Iran. The second part of the study reveals that classification shifting intensified during the COVID-19 pandemic, consistent with findings from Hsu and Yang (2022), Yan et al. (2022), Aljughaiman et al. (2023), and Taylor et al. (2023).ConclusionGiven the research findings indicating the prevalence of earnings management through classification shifting and the increasing effect of COVID-19, shareholders and investors should, especially during crises, avoid behavioral consistency and anchoring on net and operating income figures. They should carefully examine classification shifts in financial statements and use more comprehensive analyses that include non-operating items to obtain a more accurate picture of financial performance during crises. Auditors should design specific tests to identify earnings management through classification shifting and enhance review quality during crises. External regulatory bodies should not reduce supervision but instead implement stricter regulations to oversee financial report quality and disclosure, ensuring firms provide greater transparency. Less supervision and less transparent reporting can exacerbate economic fluctuations during crises. These measures can help maintain and increase transparency and trust in financial markets and ensure optimal use of resources.
Financial Accounting
Leila Farvizi; Sakineh Sojoodi; Hossein Asgharpour; Jafar Haghighat
Abstract
Numerous studies have investigated the relationship between systematic risk and a wide range of accounting and financial variables. However, most empirical studies have adopted the classical regression method, which entails limitations such as a restricted number of variables to preserve degrees of freedom. ...
Read More
Numerous studies have investigated the relationship between systematic risk and a wide range of accounting and financial variables. However, most empirical studies have adopted the classical regression method, which entails limitations such as a restricted number of variables to preserve degrees of freedom. To overcome this constraint, the present study employs the Bayesian Model Averaging (BMA) method. Using data from 55 companies listed on the Tehran Stock Exchange between 2010 and 2023, this study examines the influence of 58 different financial and accounting variables on the systematic risk of these companies. The research aims to identify the key variables that significantly contribute to systematic risk. The findings reveal that among the examined variables, company size has the strongest impact on systematic risk, with a positive coefficient. In second and third place, asset turnover and operational efficiency demonstrate significant effects, with the former exhibiting a positive coefficient and the latter a negative coefficient. The fourth influential variable is the ratio of long-term debt-to-equity, showing a positive coefficient. Lastly, the ratio of a company's market value to the book value of its total assets is identified as the fifth influential variable, exerting a negative impact on systematic risk. IntroductionUnderstanding the drivers of systematic risk is crucial for investors seeking to optimize their portfolios and for companies aiming to develop robust risk management strategies. While many studies have explored the relationship between systematic risk and various accounting and financial variables, the majority have used classical regression methods, which tend to focus on a limited number of factors. This limitation often overlooks the complex interplay among variables that could better explain systematic risk. Given the growing need for more accurate models in the face of financial market volatility, this study adopts the Bayesian Model Averaging (BMA) approach to assess the impact of a wider range of accounting and financial variables on systematic risk. The research seeks to answer the following questions:Research Question(s)- Which accounting and financial variables most significantly influence the systematic risk of companies listed on the Tehran Stock Exchange?-Do the selected variables have a positive or negative impact on systematic risk, and how do these effects vary across different industries and financial contexts?2- Literature ReviewSystematic risk, commonly measured by the beta coefficient, represents the portion of a company’s risk that cannot be diversified away. Previous studies have highlighted several accounting and financial factors, including company size, financial leverage, operational efficiency, and asset turnover, as important determinants of systematic risk (Figure 1). However, the results across studies are mixed, and traditional models often fail to account for the complex interactions among variables. Additionally, several studies have noted that the method of variable selection and estimation can significantly influence the conclusions drawn about risk determinants. The literature suggests that large firms tend to have higher systematic risk due to greater exposure to market and economic cycles, while smaller firms may experience lower risk due to reduced exposure to such fluctuations. Other studies have explored the roles of profitability, debt ratios, liquidity, and asset management in determining market risk, but there is no consensus on which variables are most influential. Figure1- Fundamental Factors Affecting Systematic RiskSource: Brimble & Hodgson (2007) 3- MethodologyThis study employs the BMA technique to assess the impact of 58 potential accounting and financial variables on systematic risk. The BMA approach is particularly well-suited to this context because it enables the simultaneous consideration of multiple models, allowing for a more comprehensive understanding of the relationships between variables and risk. The study uses data from 55 companies listed on the Tehran Stock Exchange, covering the period from 2010 to 2023. The sample includes companies from a range of sectors, ensuring that the findings are not limited to any one industry. Data were collected from financial statements and reports available on the official website of the Tehran Stock Exchange (TSETMC), and the BMA method was implemented using Stata 18 software. The estimation process includes backward sampling, in which weak models are sequentially excluded and the best models are selected based on their posterior probability of explaining the data.4- ResultsThe results of the BMA analysis indicate that several variables have a significant impact on systematic riskCompany Size: Company size has the strongest effect on systematic risk, with a positive coefficient, indicating that larger companies generally face higher systematic risk.Asset Turnover: The asset turnover ratio, which measures how efficiently a company uses its assets to generate revenue, also has a positive effect on systematic risk.Operational Efficiency: Companies with higher operational efficiency exhibit lower systematic risk, as indicated by the negative coefficient for operational efficiency.Long-Term Debt-to-Equity Ratio: A positive relationship is found between the long-term debt-to-equity ratio and systematic risk, suggesting that companies with higher leverage tend to experience greater exposure to market risk.Market Value to Book Value Ratio: This ratio has a negative effect on systematic risk, indicating that companies with higher market valuations relative to their book values are less sensitive to market fluctuations.These variables were identified as the most significant based on their posterior inclusion probabilities (PIP), with company size having the highest PIP of 0.8143, indicating it is the most important determinant of systematic risk.5- DiscussionThe findings suggest that company size plays a pivotal role in determining systematic risk. Larger companies tend to be more exposed to broader economic fluctuations and market cycles, which can lead to higher systematic risk. Asset turnover, though generally considered a measure of operational efficiency, also contributes positively to risk, potentially due to the increased exposure of firms with higher asset turnover to volatile markets. Operational efficiency, on the other hand, shows a negative relationship with systematic risk, supporting the notion that companies with better control over their operations are more resilient to market shocks. This finding is consistent with the literature suggesting that operational efficiency can mitigate the impact of external risks. Similarly, the positive relationship between the long-term debt-to-equity ratio and systematic risk aligns with prior studies that highlight the role of financial leverage in amplifying market risk. Finally, the negative relationship with the market value to book value ratio indicates that investors view companies with higher market valuations as more stable, potentially because these companies are perceived as less vulnerable to market downturns.6- ConclusionThis study contributes to the understanding of the determinants of systematic risk by employing the BMA approach, which overcomes limitations inherent in traditional regression models. The results highlight that company size, asset turnover, operational efficiency, the long-term debt-to-equity ratio, and the market value to book value ratio are the key factors influencing systematic risk. These findings have practical implications for investors and corporate managers seeking to mitigate exposure to market risk. Companies, especially larger ones, can benefit from enhancing operational efficiency and optimizing their financial structures to reduce systematic risk. Future research could explore the interaction between these variables across different sectors and market conditions, and further refine models by incorporating additional macroeconomic factors.
Capital Structure
Sarah Mohsin; Narges Hamidian; Seyed Abbas Hashemi
Abstract
Stock price crash risk, defined as an adverse event, is a pervasive phenomenon at the market level. This implies that theStock price crash risk, defined as an adverse event, is a pervasive phenomenon at the market level. This implies that the decline in stock prices is not limited to a specific stock ...
Read More
Stock price crash risk, defined as an adverse event, is a pervasive phenomenon at the market level. This implies that theStock price crash risk, defined as an adverse event, is a pervasive phenomenon at the market level. This implies that the decline in stock prices is not limited to a specific stock but extends across the entire market. Stock price crashes result in significant losses for shareholders and investors, as well as a decline in the overall capital market. Hence, understanding the factors influencing this phenomenon is of critical importance. The present study aims to investigate the impact of industry operating cash flow volatility on future stock price crash risk, considering the roles of economic policy uncertainty and conditional conservatism in companies listed on the Tehran Stock Exchange. A sample of 136 companies was selected using a screening method over the period from 2012 to 2022. To analyze the data and test the hypotheses, regression analysis and panel data techniques were employed. The findings indicate that industry operating cash flow volatility has a positive and significant effect on future stock price crash risk. Furthermore, economic policy uncertainty amplifies the positive effect of industry operating cash flow volatility on stock price crash risk. Conversely, conditional conservatism in accounting mitigates the positive relationship between operating cash flow volatility and future stock price crash risk. IntroductionThe expansion of the capital market is a cornerstone of economic growth and development for any country. A critical driver in advancing this sector is fostering active investor participation. To this end, ensuring transparency and providing access to relevant information for evaluating optimal investment opportunities, while considering the risk-return profile of various stocks, are essential for capital market participants. Among the risks faced by the capital market, stock price crash risk stands out as a significant concern. This risk, defined as a sharp and widespread decline in stock prices across the market, transcends individual stocks and affects the market as a whole. The implications of such crashes are profound, leading to substantial losses for shareholders and investors and potentially undermining the overall stability of the capital market. Consequently, identifying and understanding the factors that contribute to this phenomenon is of paramount importance. This study seeks to examine the effect of industry operating cash flow volatility on the future risk of stock price crashes. Furthermore, it incorporates the moderating roles of economic policy uncertainty and conditional conservatism in companies listed on the Tehran Stock Exchange. Literature ReviewThe existing literature suggests that stock price crashes result from efforts to conceal negative information within companies. This conclusion is based on the principal-agent theory by Jine and Myers (2006), which posits that management, having control over the flow of information, is motivated to withhold information, often negative, for various reasons over the long term.One of the factors contributing to stock price crash risk is the volatility of operating cash flows (Wang et al., 2022). Stable operating cash flows are a critical component of a company’s healthy and sustainable operations (Sun and Ding, 2020). Companies experiencing high volatility in operating cash flows typically have fewer cash reserves available for operational needs and are more reliant on external financing. For such companies, financing costs are higher, which, in turn, reduces their overall value (Chen and Huberman, 2014). It is essential to consider that external factors, such as macroeconomic and industry-specific conditions, significantly influence corporate decision-making. Management tends to believe that an increase in industry-level operating cash flow volatility exposes the company to a more uncertain external environment. As this volatility rises, capital market participants pay closer attention to the market, leading to a greater impact of negative information disclosures on the company’s future operations and financing decisions. Consequently, management becomes more inclined to conceal negative information, thereby increasing the risk of future stock price crashes.Moreover, heightened economic policy uncertainty exacerbates corporate policy risks, further incentivizing management to hide adverse news and information, which, in turn, increases the risk of stock price crashes (Luo & Zhang, 2020). Additionally, conditional conservatism practices counteract managerial tendencies and motivations to conceal negative information, thereby reducing the likelihood of stock price crashes and mitigating investment risks in equities (Kim & Zhang, 2016). Conditional conservatism is expected to prevent the accumulation of bad news within the company, thus reducing the sudden release of substantial negative information into the market (Pourheidari et al., 2018). Consequently, higher levels of conditional conservatism are associated with a lower accumulation and concealment of bad news, ultimately reducing the risk of stock price crashes (Antonakakis et al., 2013). Based on the above, the research hypotheses are as follows:Hypothesis 1: Industry operating cash flow volatility has a positive effect on future stock price crash risk.Hypothesis 2: Economic policy uncertainty exacerbates the positive effect of industry operating cash flow volatility on future stock price crash risk.Hypothesis 3: Conditional conservatism in accounting weakens the positive effect of industry operating cash flow volatility on future stock price crash risk. MethodologyThis study is categorized as applied research, as it aims to provide practical insights and solutions that can be directly implemented in real-world contexts. Methodologically, it adopts a descriptive-correlational approach, seeking to describe the characteristics of the variables under investigation and analyze the relationships among them. To achieve the research objectives, three hypotheses were formulated. These hypotheses examine the effects of industry operating cash flows volatility on future stock price crash risk, incorporating the moderating roles of economic policy uncertainty and conditional conservatism. The statistical sample consists of 136 companies listed on the Tehran Stock Exchange, observed over a ten-year period from 2012 to 2022. To analyze the data and test the hypotheses, regression analysis, panel data techniques, and Stata 15 software were utilized. ResultsThe analysis of the first hypothesis demonstrates that industry operating cash flow volatility exerts a positive and significant effect on future stock price crash risk. This finding underscores the destabilizing influence of variability in cash flows from core business operations, which can signal underlying financial instability and heighten the likelihood of abrupt and severe declines in stock prices. The results of the second hypothesis indicate that economic policy uncertainty intensifies the positive relationship between industry operating cash flow volatility and future stock price crash risk. This suggests that in an environment characterized by heightened economic policy uncertainty, the risks associated with cash flow variability are magnified. Unpredictable policy conditions can create additional pressure on management to obscure negative information in an effort to sustain investor confidence, further exacerbating the risk of stock price crashes. Finally, the findings related to the third hypothesis reveal that conditional conservatism in accounting mitigates the positive effect of industry operating cash flow volatility on future stock price crash risk. Conditional conservatism, characterized by the timely recognition of potential losses and liabilities over gains, serves as a counterbalance to managerial tendencies to suppress unfavorable information. By enforcing stringent accounting standards, conditional conservatism enhances the transparency and reliability of financial reporting, thereby attenuating the impact of cash flow volatility on crash risk and fostering greater stability in the capital market. ConclusionThis study examines the effect of industry operating cash flow volatility on future stock price crash risk, with a focus on the moderating roles of economic policy uncertainty and conditional conservatism in companies listed on the Tehran Stock Exchange. The findings of the first hypothesis reveal that volatility in operating cash flows signals potential risks related to a company’s future operations, investments, and financial activities. Moreover, such volatility may incentivize management to withhold adverse information, thereby increasing the likelihood of future stock price crashes. The results of the second hypothesis suggest that elevated economic policy uncertainty intensifies the risks associated with firm policies, further motivating management to conceal unfavorable information. This heightened opacity exacerbates the probability of stock price crashes, reflecting the amplified impact of cash flow volatility under uncertain policy environments. In contrast, the findings of the third hypothesis indicate that conditional conservatism in accounting practices mitigates the positive relationship between operating cash flow volatility and future stock price crash risk. By emphasizing the timely recognition of losses and liabilities over gains, conditional conservatism acts as a counterbalance to managerial tendencies to suppress negative information, thereby reducing the impact of operating cash flow volatility on crash risk. These findings align with prior research by Wang et al. (2022), Lu Zhang (2020), and Kim and Zhang (2016), further validating the theoretical and empirical linkages among operating cash flow volatility, policy uncertainty, and conditional conservatism in mitigating stock price crash risk.
Financial Accounting
Shadi Hasanzadeh; Khadijeh Eslami; Mana Farahi
Abstract
Today, knowledge, innovation, and technology play a crucial role in economic growth and development. Among the key factors influencing innovation, the security of intellectual property rights stands out as both essential and challenging. This study examines the impact of intellectual property protection ...
Read More
Today, knowledge, innovation, and technology play a crucial role in economic growth and development. Among the key factors influencing innovation, the security of intellectual property rights stands out as both essential and challenging. This study examines the impact of intellectual property protection on innovation, considering the mediating roles of research and development (R&D) expenditures and financial constraints. The analysis covers 119 companies listed on the Tehran Stock Exchange from 2018 to 2022, using a correlation-analytical approach. The results of hypothesis testing, based on a regression model, indicate that intellectual property protection fosters innovation within companies. Additionally, R&D expenditures and financial constraints act as mediating factors in this relationship. The findings suggest that strengthening intellectual property protection shields innovators from imitation and theft, encouraging companies to invest more in innovation. By securing exclusive rights, firms can achieve higher profitability and returns on investment. Furthermore, confirming the mediating effects of R&D expenditures and financial constraints highlights that increased intellectual property protection generates positive feedback for investors, thereby reducing financial constraints. This, in turn, allows for greater budget allocation to innovation. These insights can assist policymakers, standard-setters, and legislators in refining national strategies by deepening their understanding of the benefits and challenges associated with intellectual property protection. By implementing targeted incentive policies, they can encourage capital market participants to drive innovation and enhance corporate innovation activities.IntroductionIn today's world, innovation serves as the primary driving force behind economic and social progress, holding an unrivaled position in global competition. Companies, as key players in this landscape, strive to secure their survival and future by generating new ideas and transforming them into innovative products and services. As a result, innovation has become a strategic necessity for business growth and sustainability (Yu et al., 2021; Li et al., 2021).Intellectual property (IP) refers to human intellectual creations and initiatives that, beyond their intangible nature, hold significant economic value. Both national legal systems, such as Iran’s Property and Documents Registration Organization, and international bodies, such as the World Intellectual Property Organization (WIPO), have established frameworks to protect IP rights (Namazi and Khorramdel, 2022). Various theories have been proposed to justify and define the exclusivity of intellectual property rights (IPR) and the necessity of IP protection. Among the most prominent are the Incentive for Creation theory and the Compensation for Public Disclosure theory (Liu et al., 2024).The relationship between IPR and innovation is complex and non-linear, influenced by multiple factors, particularly research and development (R&D) expenditure and financial constraints. R&D expenditure reflects a company's commitment to technological progress and product development, playing a critical role in transforming ideas into market-ready innovations. Conversely, financial constraints act as a major barrier to innovation, significantly limiting a company’s ability to generate and develop new ideas (Liu et al., 2024).Given these dynamics and the limited literature on intellectual property within the accounting field, this study aims to explore the relationship between intellectual property protection and corporate innovation. It also seeks to determine whether R&D expenditure and financial constraints mediate this relationship.Literature reviewIn today’s complex and dynamic environment, only companies that continuously generate new ideas and designs can sustain their competitive edge. Identifying key activities that influence the innovation process is, therefore, a fundamental responsibility of company managers (Hudson, 2013; Shea, 2023). One of the critical factors expected to drive innovation in companies is the protection of IPR at both national and international levels. Safeguarding knowledge and innovations derived from R&D across various sectors—including industrial, artistic, and cultural—encourages innovation and contributes significantly to long-term economic growth and development (Liu et al., 2024).Empirical studies further highlight the complex relationship between IP protection and innovation. Yang et al. (2024) found that IP system reforms have a stronger impact on innovation in cities with lower scientific and educational levels compared to central cities with more advanced knowledge infrastructures. Hudson and Minya (2013) argued that this relationship is non-linear, varying based on economic and institutional factors. Sweet and Maggio (2015), using a global sample, found that stronger IP protection enhances innovation only in countries with above-average levels of development and economic complexity. Similarly, Akrami Rad et al. (2023) demonstrated that IP plays a multidimensional role in attracting foreign investment, while Aghaei (2016) found that, although the relationship between IPR and innovation is direct across all countries, it is notably stronger in those with higher per capita income.A review of domestic studies reveals that none have specifically examined the impact of IP protection on corporate innovation. Therefore, the findings of this study can provide valuable insights for policymakers, standard-setters, and legislators, enabling them to enhance national intellectual property protection strategies by better understanding their positive and negative implications for corporate innovation.MethodologyThis study is classified as applied research. The statistical population consists of all companies listed on the Tehran Stock Exchange between 2018 and 2022. The study period is limited to 2022, as data on IPR protection for Iran is only available up to that year.Data for the analysis were collected from company financial statements, while information on IPR protection was sourced from the WIPO website. The final analysis was conducted using EViews 11 software.ResultsThe purpose of this study was to examine the impact of IP protection on corporate innovation, with a focus on the mediating role of R&D expenditure and financial constraints. The results of the hypothesis testing indicate that IP protection fosters innovation in companies. Additionally, the mediating effects of R&D expenditure and financial constraints were confirmed, highlighting their influence on the relationship between IP protection and innovation.DiscussionOne of the most critical factors influencing innovation is the protection of IPR. However, economists remain divided on the precise relationship between IPR protection and innovation.A systematic and influential theory of innovation is presented by Schumpeter, whose concept of creative destruction suggests that IPR protection grants innovators a temporary monopoly, preventing others from imitating their inventions. This exclusivity incentivizes competitors to develop more advanced technologies, thereby fostering continuous technological progress and innovation.Conversely, Helpman (1993) argues that while stronger IPR initially stimulates innovation, in the long run, it may lead to a decline in real innovation rates. As developed countries continue producing goods based on older technologies, resources that could be allocated to innovation and research are instead diverted toward production, ultimately reducing the overall rate of innovation.A more recent perspective comes from Moskus (2000), who highlights a trade-off between knowledge dissemination and innovation incentives. While stronger IPR protection provides a robust incentive for R&D, it simultaneously restricts access to knowledge, potentially limiting opportunities for broader innovation and technological diffusion.Empirical FindingsThe findings of this study support the first research hypothesis, confirming that IP protection significantly influences corporate innovation. These results align with previous studies by Yang et al. (2024), Hudson and Minya (2013), and Sweet and Maggio (2015). These researchers argue that IPR protection enhances the value of R&D investments, particularly in sectors such as environmental protection, where innovation plays a crucial role. When IP protection is weak, firms risk having their innovations imitated by competitors, leading to reduced innovation efficiency, lower profits, and diminished motivation for further R&D.Additionally, the results of the second and third research hypotheses are consistent with the findings of Liu et al. (2024) and Liu et al. (2022). This study confirms that R&D investment and corporate innovation are influenced by information asymmetry. When foreign investors lack sufficient knowledge of a company’s innovation achievements, they may struggle to assess the commercial value of its technologies. However, if companies fully disclose their R&D advancements, competitors may exploit this knowledge and imitate their innovations, reducing firms' incentives to share information. Consequently, many companies choose to limit disclosure of their innovation activities to maintain a competitive advantage (Lily et al., 2017; Liu et al., 2022). ConclusionIn the face of investment uncertainty, investors often rely on a company’s patented technological achievements as a key indicator of its development potential. Higher-quality inventions tend to attract investment more easily, as they signal a greater likelihood of success and return. Strengthening IPR protection can, therefore, reduce the financial constraints faced by companies, enabling them to invest more heavily in innovation and advance their technological capabilities.The findings of the present study align with this reasoning, as the first proposed hypothesis confirms that strengthening IPR protection plays a critical role in promoting organizational innovation.Regarding the second hypothesis, the study reveals that R&D expenses serve as a mediating factor in driving innovation through the protection of intellectual property rights. In other words, investment in R&D is a crucial mechanism through which IPR protection fosters innovation.Furthermore, the results of the third hypothesis demonstrate that financial constraints negatively mediate the relationship between IPR protection and organizational innovation. When companies face funding restrictions, their ability to leverage IPR protection to drive innovation is diminished, thereby inhibiting the development of new technologies and innovative solutions.
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 ...
Read More
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).
Financial Accounting
Hayder Hussein Nassr; Hamzeh Didar; Gholamreza Mansourfar
Abstract
The aim of this study is to examine the presence of motivations related to the charity, signaling, and socially responsible investment (SRI) hypotheses, as well as the role of financial reporting quality in fostering these motivations, if present. This research is applied in nature and falls within the ...
Read More
The aim of this study is to examine the presence of motivations related to the charity, signaling, and socially responsible investment (SRI) hypotheses, as well as the role of financial reporting quality in fostering these motivations, if present. This research is applied in nature and falls within the descriptive-correlational category, as it explores the relationships between variables. Based on specific criteria and limitations, the screened sample consists of 101 companies listed on the Tehran Stock Exchange during the years 2014 to 2023, which were analyzed using multivariate regression models. The findings indicate that companies' participation in corporate social responsibility (CSR) activities is driven by motivations beyond charitable purposes. Furthermore, financial reporting quality has a positive and significant impact on optimal CSR—those activities driven by investment-related motivations—while it has a negative and significant impact on deviations from optimal CSR, which are driven by signaling motivations. Overall, the results suggest that companies with higher financial reporting quality are less likely to engage in opportunistic signaling through CSR activities. Consequently, CSR in these companies is more aligned with optimal goals, such as investment, profit generation, and enhancing firm value.IntroductionSeveral theoretical frameworks explain how financial reporting quality influences corporate social responsibility (CSR) activities. Legitimacy theory suggests that companies with agency problems may disclose CSR information to rebuild trust. Signaling theory argues that high-quality financial reporting uses CSR to signal transparency and financial health. Stakeholder theory emphasizes that high-quality financial reporting motivates companies to consider stakeholder interests. Agency theory suggests that low-quality reporting may lead companies to use CSR to hide weaknesses. Lys et al. (2015) propose three hypotheses: (1) the charity hypothesis (CSR for societal benefit), (2) the investment hypothesis (CSR to improve performance), and (3) the signaling hypothesis (CSR driven by future prospects or opportunism). This study aims to examine the impact of financial reporting quality on these hypotheses.Research hypothesesCSR activities do not have a significant impact on the company's financial performance.Financial reporting quality has a positive impact on CSR activities motivated by investment purposes.Financial reporting quality has a significant impact on CSR activities driven by signaling motives. Literature ReviewFinancial reporting quality can create different incentives for companies to engage in corporate social responsibility (CSR) activities, with varying motivations depending on the level of reporting quality. According to Lys et al. (2015), these motivations can be categorized into three hypotheses: the charity, investment, and signaling hypotheses.Charity Hypothesis: High-quality financial reporting can lead to CSR activities driven by genuine philanthropic motivations, whereas companies with low-quality reporting might use CSR as a tool to mask managerial or informational weaknesses. The charitable motivation is typically seen as non-strategic in companies with high-quality reporting, but in companies with lower-quality reporting, CSR may serve as a means to manipulate stakeholders' perceptions without a true commitment to society.Investment Hypothesis: Under this hypothesis, CSR activities are viewed as investments aimed at improving financial performance. Companies with high-quality financial reporting treat CSR as a strategic tool to enhance performance, believing it can reduce capital costs, improve reputation, and strengthen relationships with stakeholders.Signaling Hypothesis: CSR activities are used as signals to the market and stakeholders. Companies with high-quality financial reporting use CSR to send positive signals regarding their commitment to social and environmental causes, while companies with poor reporting may use CSR as a misleading signal to compensate for weak financial transparency. MethodologyThis applied, retrospective study focuses on analyzing relationships between various variables using past data. It is descriptive-correlational in nature. A library research method was used to develop the theoretical framework and review the literature. Primary data were collected from sources such as the Rahavard Novin software database, financial statements, company notes, and board of directors' reports. The research population includes companies listed on the Tehran Stock Exchange, with data collected from 2014 to 2023. Based on specific criteria, 101 companies were selected for hypothesis testing during this period. Results and DiscussionThe results of the first hypothesis showed that CSR positively impacts company performance, indicating that motivations beyond charity should be explored in Iranian companies. Financial reporting quality was found to drive CSR activities, supporting the second and third hypotheses related to investment and signaling motives.The second hypothesis confirmed that financial reporting quality positively impacts optimal CSR, with companies using CSR to increase value and profit. This finding is consistent with signaling and stakeholder theories, as companies with high-quality reporting are more motivated to engage in CSR for investment purposes.The third hypothesis showed that financial reporting quality negatively impacts deviations from optimal CSR, suggesting that high-quality reporting reduces opportunistic motives and leads to more genuine CSR efforts. These findings confirm that financial reporting quality promotes investment-driven motivations and reduces opportunistic behavior. ConclusionBased on the results of this study, it can be concluded that companies can improve their performance by engaging in CSR activities, and these activities are driven by motivations beyond philanthropic goals. In this context, financial reporting quality has a positive and significant impact on optimal CSR. This indicates that companies with higher financial reporting quality engage in CSR activities with investment and profit-seeking objectives. Additionally, financial reporting quality has a negative and significant impact on deviations from optimal CSR. This result suggests that companies with higher financial reporting quality are less likely to send opportunistic signals through CSR. As a result, CSR in these companies is more aligned with optimal goals—namely, investment purposes, profit generation, and enhancing company value.AcknowledgmentsWe would like to express our sincere gratitude to all the esteemed professors who assisted the authors in preparing this article.
Financial Accounting
Mehdi Ebrahimkhani; seyed Hosein shaker Taheri; Mehrdadallah Golizadeh Azari
Abstract
The purpose of this research is to evaluate the emergence of the radicalism approach in applying fundamental changes in the accounting profession using the interactive qualitative method. This study falls under the category of exploratory research in terms of results and application, and it is goal-oriented ...
Read More
The purpose of this research is to evaluate the emergence of the radicalism approach in applying fundamental changes in the accounting profession using the interactive qualitative method. This study falls under the category of exploratory research in terms of results and application, and it is goal-oriented in nature. Based on the method of data collection, this research is classified as mixed-method. In the qualitative phase, thematic analysis was employed to identify the emerging areas of the radicalism approach in implementing accounting procedures through content analysis and expert interviews. The results indicate that focusing on the radicalism approach can enhance the effectiveness of competitive reporting functions within capital market companies by reshaping the philosophical foundations of the accounting profession. IntroductionIn the early days of accounting’s development, it was viewed solely through an instrumentalist lens, with many thinkers in this field considering it to have no essence beyond its quantitative nature. However, as knowledge in the human sciences expanded across related fields, accounting underwent a significant transformation in its epistemological foundations. It moved beyond a purely quantitative approach and shifted toward a perspective that transcended positivist philosophical backgrounds, embracing social structuralist approaches. During the paradigm shifts in the humanities in the 1980s, accounting, while retaining its objectivity, began to incorporate elements of structural behaviorism. This shift introduced new foundations that helped stakeholders understand the functional aspects of accounting quality and informed their decision-making. Although these changes were initially slow and faced resistance from many traditionalists in the profession, they gradually gained acceptance. By the beginning of the 21st century, accounting knowledge had evolved beyond the traditional practices of the past, adopting more comprehensive approaches that integrated social values into the discipline. Literature ReviewRadicalism, rooted in critical thinking, seeks to prepare social arenas to accept fundamental changes by highlighting various structural and functional weaknesses. The application of this concept to accounting knowledge dates back to the late 1980s, with its peak aligning with the emergence of today's structured technologies in the accounting profession. According to proponents of this school of thought, the accounting profession cannot necessarily function effectively under the constraints of past structures. In other words, emerging structural technologies have dramatically transformed the operational fields of the accounting profession. Delaying the adoption of such an approach can reduce the social trust of information users, going beyond transparency and effective financial performance, as it fails to meet their expectations. MethodologyThis study is considered applied in terms of its results and, from the perspective of its goal, falls into the category of exploratory studies. By utilizing qualitative and quantitative models, it seeks to provide a theoretical framework and evaluate its dimensions within the context of the study. It should be noted that this study does not adhere to a specific methodology but instead employs different methods to address the formulated questions according to the requirements of each section. Based on its data collection approach, this study is classified as mixed research. Additionally, different methods are used for data collection and analysis at each stage of the study, depending on the analytical processes.In the qualitative phase, thematic analysis was employed to identify the emerging areas of the radicalism approach in implementing fundamental changes in the accounting profession. This was achieved through content analysis and interviews with experts. Subsequently, Delphi analysis was conducted to ensure that the reliability of the identified dimensions achieved sufficient theoretical consensus, allowing for their generalization to the target population.In the quantitative phase, based on qualitative/interactive analysis processes, a pairwise comparison was first performed to determine the level of effectiveness (direct, indirect, or ineffective) of the organizing themes emerging from the qualitative phase. These themes were then examined in terms of rows and columns in an "mxm" matrix to identify the drivers and systemic consequences of the radicalism approach in applying fundamental changes to accounting. This was achieved through the construction of a cause-and-effect model. ResultIn this study, due to the lack of sufficient understanding of radicalism as one of the approaches within the critical school of humanities and accounting knowledge, thematic analysis was used to identify the themes of radicalism functions in implementing changes through content screening and expert interviews. A fundamental shift must be undertaken in the accounting profession. During 12 interviews, 278 primary open codes, 36 basic themes, 7 organizing themes, and 4 overarching themes were identified. These dimensions addressed the first research question, forming the theoretical framework. Subsequently, to determine the extent of theoretical consensus, the Delphi process was conducted in two stages. The results confirmed that the 7 identified organizing themes had sufficient content and functional compatibility with the radicalism approach in implementing fundamental changes in the accounting profession, leading the research into its quantitative phase. At this stage, to answer the second research question, a pairwise comparison of the organizing themes was performed. Internal links between the themes were analyzed based on three criteria: output, input, and indicator. This analysis determined the placement of each evaluating organizing theme into one of the stimulus types (primary or secondary) and outcome (primary or secondary). The final evaluation revealed that the most stimulating theme of the radicalism function, in the context of applying fundamental changes to the accounting profession, is the evolution of philosophical ontology This theme has the potential to produce the most impactful systemic consequence of this phenomenon: the evolution of competitive reporting in accounting. DiscussionIn analyzing the obtained results, it is important to understand professional radicalism as a capacity to drive transformation in functional and structural fields. By challenging and breaking the reference frameworks and biased assumptions of the past, particularly in areas such as the accounting profession, new opportunities for development can be created. The results of the system representation model indicate that philosophical ontology in accounting, rooted in professional radicalism, serves as the primary stimulus capable of generating broader consequences in terms of sustainability and enhanced legitimacy in accounting. ConclusionThe results demonstrate that behavioral capabilities, combined with specialized capabilities, enhance the normative function of the accounting unit by promoting more responsible disclosure of information for stakeholders. Under such mechanisms, leading companies can achieve a stronger competitive position by emphasizing social values, such as addressing environmental issues and ensuring greater transparency in financial risks when communicating with stakeholders. Finally, the expansion of the radicalism approach in implementing fundamental changes within the accounting profession provides a key advantage: the evolution of competitive reporting. This evolution enables the disclosure of more comprehensive information, including details about major customers, transactions with related parties, and brand value in the capital market. By doing so, it establishes a reliable model for financial decision-makers.
Financial Accounting
Leila Zamanianfar; hossein alidadi; Danial Heidari; Alireza Altafi
Abstract
The purpose of this research is to develop Caudillo's theory to appraise the strengthening levers of governance hegemony in family ownership. First, through a systematic screening process, the levers that enhance governance hegemony were identified. During the stages of fuzzy analysis, these levers were ...
Read More
The purpose of this research is to develop Caudillo's theory to appraise the strengthening levers of governance hegemony in family ownership. First, through a systematic screening process, the levers that enhance governance hegemony were identified. During the stages of fuzzy analysis, these levers were evaluated for reliability. The results from the qualitative phase indicate the existence of six levers that strengthen governance hegemony in family companies, as identified through the steps of fuzzy Delphi analysis. All dimensions were confirmed to be reliable. Furthermore, based on the credit check process, it was determined that the most favorable fuzzy analysis method, according to participants' scores, is the hierarchical fuzzy analysis using the TODIM approach.IntroductionThe governance system in company management is the foundation for monitoring the balance of interests between the company and its stakeholders. However, based on theories such as agency cost theory, this system can often be perceived as one-dimensional or opportunistic, particularly in the ownership structure of family-owned companies. In other words, governance mechanisms in family companies tend to prioritize the expansion of interests that may not necessarily align with the broader interests of the majority of stakeholders. This misalignment gradually exacerbates the representation gap in the capital market. Therefore, assessing how the concentration of power in such structures affects stakeholder expectations is a critical issue. Beyond past research, this evaluation takes a step forward by examining its dimensions at the market level within companies of this ownership nature. Literature reviewCaudillos, or supporters of Caudillo rule (Caudilloism), represent a type of political and governing party found in one-party government systems. These systems typically revolve around a government structure loyal to a central, powerful figure. The term “Caudillo,” derived from Spanish and meaning "powerful man", describes a leader who forms a management system populated by individuals aligned with their ideology. Over time, this governance approach often leads to discrimination and corruption within the administrative system. While the characteristics of Caudillo governance-such as the pursuit of power and suppression of opposing opinions-may not directly translate to the management structures of companies, drawing thematic analogies can highlight similarities between this political system and corporate governance. A concept closely resembling Caudilloism in corporate governance is family ownership, where power is typically concentrated among the relatives of the company’s founder. In such systems, decisions often aim to satisfy the interests of the central powerful figure, mirroring the dynamics of Caudilloism. MethodologyThis research is practical and through a developmental approach, aims to identify and determine the most significant lever to strengthen sovereign ownership in family-owned companies within capital market contexts, using Todim's fuzzy analysis. Given the incoherence of the theoretical framework, this research contributes to enhancing perceptual effectiveness through a developmental lens, both thematically and analytically. In terms of data type, this research falls into the category of mixed-method research, combining qualitative and quantitative analyses to describe and survey the research topic. The implementation strategy is based on mathematical models and operational research, categorizing it as analytical-mathematical research. Descriptive-analytical research involves not only illustrating what exists but also describing and explaining the reasons behind the situation, including the “how” and “why” of the problem and its dimensions. Such research requires strong argumentative support to explain and justify its findings. This support is achieved through an extensive review of the literature, theoretical discussions, and the development of leverage criteria and general propositions regarding the phenomenon under investigation. In the qualitative phase, meta-composite analysis is used to establish a solid foundation. The researcher logically connects the details of the research problem with its components, enabling meaningful conclusions to be drawn. FindingIn this study, addressing the first research question regarding the levers to strengthen government ownership in family-owned companies, content analysis of research texts was conducted to identify evaluable dimensions. A Delphi analysis was then performed to assess the reliability of these dimensions within the Iranian capital market. The results from the qualitative phase indicated the existence of six levers. Subsequently, to address the second research question, fuzzy analysis based on TODIM was conducted to identify the most prominent dimension in this relationship. The results of the analysis revealed that the lack of independence of the board of directors is the most significant lever reinforcing corporate governance ownership in family-owned companies. DiscussionThe purpose of this research is to develop Caudillo's theory to appraise the governance hegemony levers in family ownership. Caudillo's theory outlines the structure of political governance in administration based on power-oriented processes, where individuals close to power are selected as leaders and tasked with overseeing executive affairs. Given that the structure of family-owned companies may follow a similar pattern, this research examines various aspects of the structural characteristics of companies with power-oriented ownership, specifically in the context of family ownership. In analyzing the results, it can be stated that family-owned structures often aim to maintain their power within the company. To achieve this, they tend to select board members who have close familial or interactive ties with the president or founder of the company. This ensures their influence over the company's decisions. Consequently, the independence of the board of directors in such companies is often compromised, which can lead to the allocation of bonuses to managers and an increase in information asymmetry. ConclusionThe results of this study indicate that the management of companies is often influenced by the presence of individuals who may not necessarily possess expertise in management or effective decision-making. Their primary role is to ensure that the interests of those in power are safeguarded, even at the expense of other stakeholders. In family-owned companies, the ownership structure characterized by a higher proportion of non-independent members on the board of directors, can exacerbate conflicts of interest due to the lack of independence among board members. This imbalance, where non-independent members outnumber independent ones, creates a fertile ground for conflicts between the interests of the company and its shareholders, ultimately harming the interests of minority shareholders.
Accounting report
Esmaeil Khoshbakht; Amirhossein Taebi naghandari
Abstract
The present study aims to investigate the effect of religious beliefs on the inaccuracy of accountants in preparing financial statements, with a focus on the mediating role of professional ethics in Iran. For this purpose, 400 questionnaires were designed and distributed among official accounting and ...
Read More
The present study aims to investigate the effect of religious beliefs on the inaccuracy of accountants in preparing financial statements, with a focus on the mediating role of professional ethics in Iran. For this purpose, 400 questionnaires were designed and distributed among official accounting and auditing professionals. The data was analyzed using Amos software. The findings indicate that religious beliefs have a negative and significant effect on accountants’ dishonesty and a positive and significant effect on their professional ethics. Additionally, the professional ethics of accountants is a factor that reduces inaccuracies in preparing financial statements, exerting a negative and significant effect. Finally, as a mediating variable, professional ethics explains the relationship between religious beliefs and accountants' dishonesty. The findings confirm that professional ethics serves as a partial mediator in this relationship.IntroductionFraud and inaccuracies in financial reporting have drawn significant attention in the accounting and auditing professions, particularly regarding their causes and the methods available to prevent fraudulent behavior. The inaccuracy of accountants is a multi-dimensional and complex phenomenon with various causes and effects, often leading to destructive consequences for business units and society.Increasing levels of inaccuracy in financial reporting have resulted in the bankruptcy of both large and small companies, raising concerns about the quality of financial statements. Consequently, identifying opportunities and possibilities to address accountants' inaccuracies in financial statements has become a key focus for creditors, investors, consultants, legislators, accountants, and other stakeholders.The expansion of morality and religiosity can often be more effective than laws, regulations, and standards in preventing inaccuracies. Accountants and auditors primarily follow laws and standards imposed by regulatory bodies such as the standards development committee and the auditing organization. However, these externally imposed standards may not always be fully accepted or embraced wholeheartedly. In contrast, religious and moral principles such as honesty and truthfulness are deeply rooted in personal beliefs. These principles often stem from family upbringing and are influenced by factors such as schooling, religion, and public or cultural institutions, which are deeply intertwined with native and natural structures. As a result, there is a stronger likelihood that auditors and accountants will adhere to religious and moral principles compared to externally imposed standards.Literature ReviewThe relationship between religiosity and religious beliefs can be analyzed through the theory of social norms. Social norm theory suggests that social norms influence people's behavior. It predicts that the religious beliefs of managers are shaped by the religious norms prevalent in their local geographical area. The importance of social and religious norms within a society plays a significant role in fostering people's adherence to these norms. By emphasizing the overall importance of moral behavior, faith-based beliefs provide specific guidelines and equip adherents with a framework for describing and understanding moral or immoral experiences.MethodologyThis research is one of the few studies that utilize the scientific method of construction and experimental proof, conducted based on pre-determined research hypotheses and plans. This type of research is appropriate when the data measurement criteria are quantitative, and statistical techniques are employed to extract results. Additionally, since the data for this study is collected through a questionnaire, it can be classified as survey research. In terms of its purpose, it falls within the applied research category.In this study, all official accounting and auditing justice experts working at the provincial centers across the country were considered as the statistical population. Using Cochran's formula, the sample size for the study was determined to be 385 individuals. To ensure caution, 400 questionnaires were distributed among the members of the statistical population. Given the existing limitations, the questionnaire was administered online through the Judiciary Research Center. Out of the respondents, 325 individuals completed the questionnaire, and the number of valid responses suitable for analysis was 312. It should be noted that 13 questionnaires were excluded due to incomplete information. Therefore, the total number of questionnaires used for statistical analysis in this study was 312.ResultsFigure 1 illustrates the regression coefficients and the paths related to the testing of research hypotheses. The variable of faith-based beliefs is considered an independent variable, the inaccuracy of accountants in financial reporting is the dependent variable, and professional ethics is the mediating variable. Path c represents the relationship between the independent and dependent variables in the absence of a mediating variable. Path a shows the relationship between the independent variable and the mediator, while path b indicates the relationship between the mediator and dependent variables. Additionally, path c' represents the relationship between the independent and dependent variables in the presence of the mediating variable. To test the research hypotheses in Amos software, three mediation models, the direct model and the indirect model were employed. These models were included in the present study, and the related findings were reported. The findings revealed that religious beliefs have a negative and significant effect on accountants’ dishonesty and a positive and significant effect on their professional ethics. Furthermore, the professional ethics of accountants, similar to religious beliefs, is a factor that reduces the inaccuracy of accountants in preparing financial statements and has a negative and significant effect on it. Finally, as a mediating variable, professional ethics explains the relationship between religious beliefs and accountants' dishonesty. The findings confirm that professional ethics is a partial mediator in this relationship.DiscussionThis research demonstrated how religiosity and professional ethics can effectively reduce the inaccuracy of accountants in preparing financial statements. The beliefs of accountants and preparers of financial statements can often have a greater impact than reporting laws and standards. Since accountants’ dishonesty has highly destructive effects on society, economic stability, and public trust, the findings of the research suggest that strengthening accountants’ faith and moral beliefs can help prevent this harmful factor.ConclusionAt first glance, it might be expected that an accountant with strong religious principles would demonstrate higher moral standards, thereby preventing them from preparing reports and financial statements that deviate from accounting principles. However, this is not always the case, and in some instances, the result may be the opposite. In reality, if religious beliefs alone do not enhance the moral system, they cannot effectively mitigate fraudulent behavior. In such situations, religiosity without moral commitment may manifest as hypocritical behaviors, which not only fails to reduce wrongdoing, but may even exacerbate it. Without ethical commitment, managers and accountants may manipulate financial statements to make them appear favorable, altering the numbers to avoid managerial threats without adhering to ethical principles.
Financial audit
Mohammad Amri Asrami; Seyed Kazem Ebrahimi; Hossein Amini
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 ...
Read More
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.
Introduction
A 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 Review
Green 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.
Methodology
This 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.
Results
The 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.
Conclusion
Disclosure 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.
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 ...
Read More
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.
Capital Structure
Mahmood Madhoosh; Mehdi Safari gerayli; Javad Ramezani; Javad Babaee Khalili; Mehdi Khalilpour
Abstract
This study, while identifying the emerging fields of human rights accounting development in Iran's capital market, seeks to evaluate them within the context of the research. Using interviews and the grounded theory process, through three stages of open, central, and selective coding, an attempt was made ...
Read More
This study, while identifying the emerging fields of human rights accounting development in Iran's capital market, seeks to evaluate them within the context of the research. Using interviews and the grounded theory process, through three stages of open, central, and selective coding, an attempt was made to develop the theoretical framework of the phenomenon. Finally, through the matrix processes, the most effective field of human rights accounting development was determined in the context of the study. The results of the qualitative part of this study, from a total of 321 open codes, indicate the identification of 32 themes, 6 components, and 3 main categories. IntroductionHuman rights are considered one of the key objectives of international institutes and organizations today, influencing various aspects of social functions. In addition to identifying the emerging contexts of human rights development in Iran’s capital market, this study seeks to evaluate these contexts within the research framework. Conducting such a study can serve as a basis for research innovation from a methodological perspective, while also contributing to the theoretical literature on human rights accounting and increasing the level of theoretical knowledge on the subject. This is particularly relevant given the structural features of companies in different societies and capital markets.Theoretical frameworkHuman rights represent a level of adjudication that every human, by nature, should enjoy. The dimensions of human rights include inherent rights, equal rights, inalienable rights, and universal rights. Human rights are a set of rights that arise from human nature, and every person in society should enjoy them without exception. Two narrow and wide approaches can be identified at the theoretical level. The wide approach is a process based on the limitless flow of data at the societal level, where information can be accessed, transferred, and publicized freely. In this way, freedom of information in human rights regulations refers to the people's right to access all types of information, including information in financial markets (McDonagh, 2020). The narrow approach, which emerged due to changes in the international community over time, narrows the range of information freedom and focuses exclusively on citizens' freedom to access information held by governmental institutions.MethodologyThe present study is developmental in terms of results, exploratory in terms of purpose, and combinatory in terms of data type. In the qualitative part, data were first collected through interviews using open, axial, and selective coding to identify the emerging contexts of human rights accounting in capital market companies. To confirm the reliability of the identified contextual axes, the Fuzzy Delphi analysis process was employed. Subsequently, in the quantitative part, the study seeks to prioritize the most effective axes using matrix analyses with row i and column j and MATLAB software. Given the nature of the study, which combines data collection processes in both qualitative and quantitative parts, the initial stages involved conducting interviews to gradually reach theoretical saturation by identifying the emerging contexts in human rights accounting through unstructured, in-depth interviews and designing open-ended questions. After developing the conceptual codes from the interviews, the process shifted to semi-structured and structured interviews to differentiate the components, creating general categories to facilitate theoretical saturation.Research findingsIn this section, the findings from the data-based theoretical analysis in the qualitative part are first presented to design a model, followed by matrix analysis to advance the objectives of the quantitative part. In the qualitative part, 14 accounting experts were interviewed using a three-stage coding process within the data-based theory to identify the emerging contexts of human rights development at the level of capital market companies, forming a theoretical framework. Based on the specification of coding processes according to Glasier's approach in data-based analysis, a theoretical framework related to emerging contexts in human rights accounting development can be proposed at the level of capital market companies.Next, Fuzzy Delphi analysis is employed to determine the experts' consensus regarding the appropriateness of the research components with the identified categories in the emerging contexts of human rights accounting development. Fuzzy Delphi analysis was used to assess the reliability and fit of the main components of the proposed model. All identified components were confirmed in the qualitative stage, and theoretical consensus was achieved. Therefore, this study shows that the most important context in the emerging development of human rights accounting in capital market companies is the development of effective governance functions aimed at motivating equal approaches among operational and financial units within the company and its stakeholders.Discussion and conclusionThe purpose of the present study is to evaluate the emerging contexts in human rights accounting development in Iran’s capital market. Grounded Theory was used to establish a theoretical framework for this phenomenon. A total of 321 open codes, 32 themes, 6 components, and 3 main categories were derived from 14 interviews, totaling approximately 830 minutes. Based on this analysis, a model related to the emerging contexts in human rights accounting development was proposed for Iran’s capital market.Matrix analysis revealed that the most important context in the emerging development of human rights accounting in capital market companies is the development of effective governance functions to promote equal approaches between the financial and operational units of the company and its stakeholders. The role of corporate governance as an influential factor in human rights accounting development includes fostering diversity in the selection of board members to represent various stockholder groups, considering factors such as religion, race, and gender. This diversity can enhance the effectiveness of supervision over managers and financial units.Implementing this approach can strengthen shareholders’ motivation to enter the capital market and invest in companies with a commitment to human rights. Developing accounting management information systems under governance supervision can facilitate the advancement of human rights accounting by enhancing the financial reporting language. Furthermore, these systems can significantly contribute to the creation of a data bank in companies, enabling them to report to human rights institutions. To keep their financial functions up-to-date with human rights compliance at the capital market level, it is crucial for companies to adhere to human rights management accounting information systems and invest in these areas to provide more robust information.Given the importance of corporate governance as an effective mechanism in shaping human rights accounting in capital market companies, it is recommended that boards of directors strengthen managerial oversight by focusing on the behavioral, ethical, and operational aspects of companies, ensuring the equal protection of citizens’ rights in accounting processes and procedures.
Accounting report
Alireza Javadipour; jafar Babajani; Ghasem Blue; Vajhollah Ghorbanizadeh
Abstract
Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. The present study presents a model for evaluating the performance of the audit committee and a practical ...
Read More
Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. The present study presents a model for evaluating the performance of the audit committee and a practical model for the use of the activities of the audit committee by the beneficiaries. The model obtained in the current research includes 3 parts of evaluating the individual characteristics of the members of the audit committee, evaluating the work processes and reporting of the audit committee, and evaluating its duties and responsibilities, and the final model includes 3 dimensions, 13 components, and 78 indicators. The results of the research showed that the working and reporting processes of the audit committee have the most weight in evaluating the performance of the audit committee, and the evaluation of the audit committee meetings as the focus of the audit committee's activities is the most important among the performance evaluation components.ObjectiveThe optimal performance of the audit committee is an important variable in improving the processes and structure of corporate governance as well as financial reports. The duties of audit committees around the world are in sync with developments in the economic environment, and in Iran, according to the approved charter of the audit committee, the purpose of forming an audit committee in companies is to help fulfill the supervisory responsibility of the board of directors and to improve it in order to obtain assurance of reasonable quality of financial reporting, effectiveness of the internal audit process, ensuring the independence of the independent auditor and its effectiveness, adapting the company's activities to the laws, and ensuring the effectiveness of the activities of the corporate governance system, its committees, and other components. Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. Due to the lack of comprehensive research in the country to provide a model to evaluate the performance of the audit committee, the present research has addressed this issue and a practical model for the use of the activities of the audit committee has been presented.MethodThe research method used in the first stage of the study involved extracting the dimensions, components, and performance evaluation indicators of the audit committee from the theoretical sources of the research. Then, the Fuzzy Delphi method was used to screen the indicators, and the Best-Worst Method (BWM) multi-criteria decision-making method was used to weigh each dimension, component, and index. Finally, to determine the gap between the existing situation in the field of audit committee performance evaluation and the model obtained in the current research, the Fuzzy Gap method has been used.FindingsBy studying the theoretical sources of the research, 96 indicators were determined to evaluate the performance of the audit committee, which were classified into 3 dimensions and 15 components using theoretical foundations. In the next step, to check the indicators, interviews were first conducted with 10 experts. In the interviews conducted regarding 6 indicators, revisions, and content adjustments were made to adapt to the current conditions of the country's economic environment. One index was also removed due to the lack of a legal structure for the index in Iran. In the next step, 95 finalized indicators were presented to the research experts for screening, and the responses given by the research experts were analyzed using the Fuzzy Delphi method. By calculating the fuzzy average of the numbers and then de-fuzzifying them, indicators with a de-fuzzified number less than 0.7 were removed, and 78 indicators were approved by the research experts. The model obtained in the current research includes three parts: evaluating the individual characteristics of the members of the audit committee, evaluating the work processes and reporting of the audit committee, and evaluating its duties and responsibilities. The final model includes 3 dimensions, 13 components, and 78 indicators.4- ConclusionAccording to the findings of the research, the important components in evaluating the performance of the audit committee are the audit committee meetings, the audit committee resources, communication with the board of directors, the audit committee charter, and monitoring of financial reporting. The results of the research showed that the working and reporting processes of the audit committee carry the most weight in the evaluation of the audit committee's performance, with a weight of about 66%, and the evaluation of the audit committee meetings as the focus of the audit committee's activities is the most important among the evaluation components. Also, proper communication with the board of directors, provision of sufficient resources for the activities of the audit committee, the existence of an approved charter of the audit committee, and monitoring of internal controls and financial reporting are important areas for evaluating the performance of the audit committee. The results of the research also indicated the existence of a significant gap between the current status of the audit committee's performance evaluation and the model obtained in the research. In this regard, it is suggested that the legislator (Securities and Exchange Organization) obliges the listed companies to evaluate the performance of the audit committee under their supervision. Furthermore, it is recommended to use the model presented in the current research, considering the importance of dimensions and components. Additionally, the board of directors of the companies can improve the performance of these committees by taking into account the important components of the audit committee's performance, by holding the audit committees under their supervision accountable in these areas, and also making a reasonable and logical assessment of their performance.Enhancing KnowledgeThis research has presented a practical model to evaluate the performance of the audit committee according to the characteristics of Iran's economic environment, which can serve as the basis for analyzing the performance of the audit committee based on its different functional dimensions.
Accounting and various aspects of finance
Javad Shekarkhah; Mohammad javad Salimi; Seyed Soroush Ghazinoori; Ali Hedayati Bilondi
Abstract
AbstractPension funds in Iran use a defined benefit pension plan, and their sustainability is important. However, the evaluation of their sustainability has always been criticized. Minimum reporting and simple accountability indicators do not meet the informational needs of stakeholders. Thus, the main ...
Read More
AbstractPension funds in Iran use a defined benefit pension plan, and their sustainability is important. However, the evaluation of their sustainability has always been criticized. Minimum reporting and simple accountability indicators do not meet the informational needs of stakeholders. Thus, the main issue is to identify the indicators and standards for a comprehensive evaluation of financial sustainability. To address this issue, the theoretical foundations of sustainability evaluation of pension funds and the indicators applied by other countries and international organizations were examined. The indicators were presented to experts for receiving their opinions and, to reach a consensus on key indicators, a Fuzzy Delphi method was applied. For ranking and developing a combined indicator, the final indicator was obtained using experts' opinions and the SWARA method. 27 indicators in four dimensions were extracted from the theoretical foundations: equity, adequacy, financial, and innovation. According to the results of the Fuzzy Delphi method, 15 key indicators were finally confirmed. Among the key indicators, the support ratio obtained the first rank, while the replacement rate and penetration coefficient obtained the second and third ranks, respectively. The results of the SWARA method confirmed the combined indicator consisting of the equity dimension (1 sub-indicator), the adequacy dimension (3 sub-indicators), and the financial dimension (11 sub-indicators). The weight of equity, adequacy, and financial in the combined indicator is equal to 6%, 21%, and 73%, respectively. The support ratio, the present value of the Assets to Liabilities Ratio, and the actuary analysis obtained ranks 1 to 3. According to the combined indicator, the financial dimension has the highest importance, and despite difficulties such as a lack of resources and liquidity to pay current obligations, attention is focused on equity, adequacy, and innovation. However, combined indicators should always be reviewed.IntroductionOne of the challenges faced by pension funds and stakeholders in this system is how to assess financial sustainability and reporting. The governance structure, stakeholder relations, management, and accountability of pension funds necessitate attention to the evaluation of sustainability. Occupational pension schemes must provide necessary information regarding retirement plans. The information should be presented in a way that stakeholders can monitor and assess the financial health of occupational pension schemes and determine whether they are capable of fulfilling their contractual obligations. International organizations generally use indicators that are based on accessible information from different countries and therefore have the highest utility for comparison.In recent years, combined indicators have become one of the most commonly used analytical tools in many fields of social realities. Combined indicators have been widely accepted as useful tools for decision-making and information communication. Combined indicators are a combination of simple indicators with specific weights, where the weights indicate the relative importance that each of them should have in the final overall indicator. Determining the simple and combined indicators for assessing financial sustainability requires a precise understanding and attention to the characteristics of retirement plans, as these characteristics will vary from one organization to another and across different retirement schemes. This research aims to investigate and study the indicators used by international organizations and other countries, providing a scientific basis for evaluating and reporting the financial sustainability of pension funds.MethodologyConsidering the objective of the research, it is of an applied nature. In terms of implementation, this research is field-based. The research is of a mixed nature, meaning it consists of two components: qualitative and quantitative. The research, in terms of data collection, is conducted in a real and unadulterated manner and falls into the category of descriptive (non-experimental) research with a survey and exploratory approach. To properly conduct the research and achieve scientific results, four main stages of development and actions have been undertaken.The first stage involves reviewing and studying the theoretical foundations of evaluating the financial sustainability of pension funds and the indicators used in other countries, as well as identifying evaluation models used by international institutions to access proposed indicators, seek expert opinions, and obtain consensus on them. The second stage includes seeking expert opinions on the extracted key indicators from the theoretical foundations of the research to select acceptable indicators based on the conditions of Iranian pension funds. The Fuzzy Delphi method was used to seek expert opinions. In the third stage, the SWARA method was used to determine the weights of key indicators. Finally, in the last stage of the research, the findings and results are compared and aligned with the combined indicators used by other countries and international institutions. Results and DiscussionThis study analyzes a significant number of indicators of pension system sustainability. In conducting this research, using literature and scientific texts, the indicators for evaluating the sustainability of pension funds were identified in terms of adequacy (6 indicators), equity (4 indicators), financial (14 indicators), and innovation (3 indicators). Based on the consensus of experts, key indicators were finalized in three dimensions. The results indicate a combined indicator consisting of the dimensions of equity (1 sub-indicator), adequacy (3 sub-indicators), and the financial dimension (11 sub-indicators). In the next stage, using the SWARA method, weights were assigned to each of the indicators. Based on the ranking performed in the combined indicator, the equity dimension, including one indicator (implicit pension debt), accounts for 6% of the weight of the combined indicator. The adequacy dimension, composed of indicators such as replacement rate, asset growth rate, and asset growth rate to inflation ratio, accounts for approximately 21% of the weight of the combined indicator. Lastly, the financial dimension, being the most influential, accounts for 73% of the weight of the combined indicator and includes indicators such as population coverage ratio, support ratio, dependency ratio, consumption-to-resource ratio, consumption growth rate-to-resource ratio, current asset value-to-obligations ratio, accumulation rate, insurance contribution-to-pension payment ratio, actuarial analysis, economic dependency ratio of the elderly, and funding ratio. Considering the obtained combined indicator, it can be stated that the financial dimension indicators have the highest importance, followed by the sub-indicators of the adequacy dimension.ConclusionThe results of this study indicate that reporting and evaluating the financial sustainability of pension funds have faced challenges, including the lack of consensus on evaluation indicators. Published reports on the status and financial performance of pension funds have not been aligned with the characteristics of pension funds and stakeholder needs. Additionally, it is observed that some of the theoretical indicators mentioned in the literature do not correspond with the indicators used by international organizations (particularly the actuarial ones). According to the combined indicator, the financial dimension has the highest importance, and despite difficulties such as lack of resources and liquidity to pay current obligations, attention is focused on equity, adequacy, and innovation. However, combined indicators should always be reviewed.To address the existing issues at the operational, supervisory, and standard-setting levels, sufficient and effective measures need to be taken to advance the goals of sustainability assessment and reporting. Standard-setting organizations in the field of sustainability can play a crucial role in enhancing sustainability knowledge through educational development. At the organizational level, strong official support and senior management commitment are required for the development of sustainability assessment processes, and necessary training should be provided. It is important to pay more attention to the concepts and indicators of sustainability assessment to foster a better mindset towards sustainability and reporting. Regulatory bodies and stakeholders should employ innovative approaches in their assessments, including the performance of pension funds. The use of simple indicators may not provide sufficient information, so it is better to utilize combined indicators and update them to align with the characteristics of the pension fund's operating environment.
Financial Accounting
Zahra Jafari; Rahim Bonabi Ghadim; Rasoul Abdi
Abstract
The purpose of this research is the evaluation of effective criteria for the desirability of financial stability integration based on the comparison of metaheuristic algorithms in banks listed on the Tehran Stock Exchange. Initially, through a systematic content screening process, the effective criteria ...
Read More
The purpose of this research is the evaluation of effective criteria for the desirability of financial stability integration based on the comparison of metaheuristic algorithms in banks listed on the Tehran Stock Exchange. Initially, through a systematic content screening process, the effective criteria for the desirability of financial stability integration are used to evaluate banks listed on the Tehran Stock Exchange. Then, relying on two algorithms of Particle Swarm Optimization and Gray Wolf, the study reveals that both innovative algorithms used in this study have the necessary capability to determine the desirability of the financial stability of banks listed on the Tehran Stock Exchange.Metaheuristic Algorithms, Financial Stability Integration, The Desirability of Banks' Efficiency. IntroductionOne of the most important changes in the economic systems of societies is the increasing focus on the functions of financial stability in the banking systems of countries, which has been increasingly taken into account in macroeconomic policies. It is important to note that, due to reasons such as international sanctions, the banking system in developing countries faces many challenges, including disruptions in the banking system and financial exchanges as a result of the reduced foreign trade. This can lead to increased financial costs and risks, reduce public trust in the banking system, diminish international interactions with foreign banks, and disrupt the economic balance. The purpose of this research is the evaluation of effective criteria for the desirability of financial stability integration based on the comparison of metaheuristic algorithms in banks listed on the Tehran Stock Exchange. Literature ReviewFinancial stability in the banking system is defined as a low level of vulnerability to possible risks, which creates a level of balance and stability in banking systems through the ability to resist economic challenges. Elsa et al. (2018) also considered the financial stability of banks as a basis for economic growth functions in a definition and stated that a dynamic banking system needs to control the risks and costs of commercial transactions in a balanced economy to achieve stable financial stability. On the other hand, Verma and Chakarwarty (2023) suggested that if financial stability does not govern the banking systems of countries and they do not have the necessary efficiency, the optimal direction of resources to industries faces a serious challenge, and this issue can affect the country's economic growth in a short period. MethodologyThis study employs a combined and applied methodology. Initially, through a systematic content screening process, the effective criteria for the desirability of financial stability integration are used to evaluate banks listed on the Tehran Stock Exchange. Then, relying on the two algorithms of Particle Swarm Optimization and Gray Wolf and extracting data related to the criteria identified between 2017 and 2018, efforts are made to determine the optimal point of desirability of financial stability integration for banks listed on the Tehran Stock Exchange. In this process, based on the expansion of the mathematical equations of each metaheuristic algorithm and the command codes of the MATLAB software, necessary actions are taken to answer the research questions. ResultThe results showed that both innovative algorithms used in this study have the necessary capability to determine the desirability of the financial stability of banks listed on the Tehran Stock Exchange. However, based on the Wilcoxon Signed-Rank Test coefficients, the Gray Wolf algorithm is more accurate than the Particle Swarm Optimization algorithm for predicting the function of the identified criteria in determining the desirability of financial stability of banks listed on the Tehran Stock Exchange. The results after executing command processes in MATLAB software indicated that both algorithms have the necessary capability to determine the desirability of the financial stability of banks admitted to the Tehran Stock Exchange. However, based on the coefficients of the Wilcoxon test, the Gray Wolf algorithm has a higher accuracy than the Particle Swarm Optimization algorithm for predicting the performance of the identified criteria in determining the desirability of the financial stability of accepted banks. It is also found that the most effective criterion in strengthening the determination of the desirability of financial stability of banks is the liquidity circulation "ϑ3" in the Gray Wolf algorithm. DiscussionIt is also found that the most effective criterion in strengthening the determination of the desirability of banks' financial stability is the Turnover Ratio in the Gray Wolf algorithm. The coefficients obtained in the Gray Wolf algorithm indicate a more effective optimization of effective criteria in determining the financial desirability of the country's banking system. This issue provides an explanation for the interpretation that banks can benefit from this algorithm for financial planning and covering their weaknesses in preserving resources even in the risky conditions of today's economy. ConclusionThe results show that the banks whose total value of transactions in the capital market is higher than the average value of their total shares over a certain period have higher capacities for liquidity circulation. Furthermore, in providing banking services in current and investment matters in competitive projects, these banks have the upper hand compared to other banks. The existence of such added value of shares in the capital market can be considered as contributing to higher returns and lower risk for investing in these banks. Therefore, as the basics of determining the comparative evaluation between algorithms, i.e., the constant return to scale (CRS) and the variable return to scale (VRS) showed banks with higher liquidity circulation and relying on the Gray Wolf algorithm reach the optimal point faster. This finding illustrates the flexibility of financial resources in timely allocation to the market and industries, which can bring higher returns for their shareholders in the long run.
Capital Structure
Mehdi Dasti; Mohammad Firouzian Nezhad; Ali Mahmoodi
Abstract
The purpose of this study is evaluating the reduction of the government's financial burden through the typology of drivers affecting generational accounting in the capital market by action research. In terms of methodology, this study has used Colaizzi's model (1978) to implement action research steps. ...
Read More
The purpose of this study is evaluating the reduction of the government's financial burden through the typology of drivers affecting generational accounting in the capital market by action research. In terms of methodology, this study has used Colaizzi's model (1978) to implement action research steps. Therefore, based on this model, first, through interviews with experts and open coding, an effort was made to identify n Effective drivers on the implementation of generational accounting in capital market companies. Then, in order to validate the propositions, a critical evaluation was done to compare the propositions with similar researches, so that the propositions can enter the stage of forming a focus group to discuss and exchange opinions for the cognitive separation of each proposition in the form of a category. The results showed that a total of 22 propositions were identified from a total of 12 interviews and 217 open codes created. On the other hand, it was determined in the quantitative section, 22 criteria identified in 4 categories were the creators of the generational accounting typology framework of capital market companies. IntroductionOne of the most emerging concepts in the field of accounting knowledge, which in recent years has become a factor connecting the public sector to achieve sustainable development in the private sector, is generational accounting. Created to measure the relative financial burden on future generations, generational accounting is considered one of the financial tools of governments, both in the public and private sectors, that can help balance the circulation of cash in social contexts. Since industries operating in the capital market seek to provide financial resources to advance their business goals and facilitate economic growth and development, attention to the processes of allocating financial resources through the type of government support governance can reduce the financial burden on future generations. The purpose of this study is to evaluate the reduction of the government's financial burden through the typology of drivers affecting generational accounting in the capital market using action research. MethodologyIn terms of methodology, this study has used Colaizzi's model (1978) to implement action research steps. Therefore, based on this model, first, through interviews with experts and open coding, an effort was made to identify effective drivers influencing the implementation of generational accounting in capital market companies. Then, in order to validate the propositions, a critical evaluation was conducted to compare the propositions with similar research, so that the propositions could enter the stage of forming a focus group to discuss and exchange opinions for the cognitive separation of each proposition into a category. Then, through a Q evaluation checklist, each statement was scored between +4 and -4, and finally, a 4-level matrix was created to establish a foundation of effective drivers in the implementation of generational accounting, to reduce the government's financial burden on future generations. ResultAs it was determined during the research process, first through interviews and open coding, generational accounting propositions were identified. Then, to achieve validity, a matching between similar researches was performed to provide the possibility of entering the statements identified in the Q analysis model for the cognitive classification of this phenomenon in the context of capital market companies. Subsequently, by forming a focus group to determine the cognitive categories of the examined concept, during four sessions and by creating a Q evaluation checklist from +4 to -4 in 22 slots according to the identified propositions, the necessary actions were taken, and participants were asked to place each proposition in one of the 22 slots of the Q evaluation checklist. Then, through the Wiremax matrix, cognitive classes were determined regarding the separation of drivers affecting the implementation of generational accounting, and the results indicated the existence of four cognitive classes, which can be effective in reducing the financial burden of governments on future generations. The results showed that a total of 22 propositions were identified from a total of 12 interviews and 217 open codes were created. On the other hand, it was determined in the quantitative section that 22 criteria identified in four categories formed the creators of the generational accounting typology framework of capital market companies. ConclusionThe results showed that focusing on net transfer payments in the embargoed conditions of the country's industries can be considered a form of contingency governance that aims to balance the financial flow in the country's economic system. It reduces the high dependence of industries on developed economies in terms of providing resources or technological knowledge and helps balance the financial burden of the government in saving resources. Because the inefficiency of the economic infrastructure of the capital market system does not allow for the optimal allocation of resources to industries, the government sees no other way to prevent negative economic growth and the influence of other macro-economic factors, such as inflation, other than the allocation of resources through transfer payments. Although it is possible to infer the consequence of economic stickiness due to political maneuvers in the shadow of transfer payments, industries have no choice but to accept the role of the government in receiving transfer resources due to the lack of commercial exchange and the use of strategies with similar foreign companies. It is also important to mention that the lack of similar research with the analytical nature of this study makes it impossible to compare the results with other research.
Accounting and various aspects of finance
Mohamad Marfo; Mohammad javad Salimi; Iman Raeesi Vanani; Mojtaba Alifamian
Abstract
Purpose: The rapid development of technology and extensive environmental changes have accelerated economic growth, and the increasing competition among enterprises has restricted access to profit and increased the probability of enterprises ' financial distress. Due to the effects of high costs of financial ...
Read More
Purpose: The rapid development of technology and extensive environmental changes have accelerated economic growth, and the increasing competition among enterprises has restricted access to profit and increased the probability of enterprises ' financial distress. Due to the effects of high costs of financial distress, its prediction has attracted the attention of researchers since the beginning. Therefore, this paper aims at a bibliometric analysis of financial distress research in the accounting, management and economic areas. Design/methodology/approach: The research method is based on a three-step protocol of dataset setting, dataset refining, and analyzing the data. First, the published articles in the financial distress field were collected from the Web of Science database. Second, the document information was refined, and 801 articles were chosen for literature review in this area. Finally, we used the bibliometric analysis toolbox to investigate the documents. Also, bibliometric analysis in this research was conducted using VOSviewer software. Findings: The findings of this research indicate the existence of six main streams of research (methods of predicting financial distress, predictors of financial distress, restructuring strategy, corporate governance, bank bankruptcy and earnings management) in the field of financial distress. Additionally, the results highlight the importance of social responsibility of the company, also demonstrate that improvements in technology, particularly the use of artificial intelligence tools, have enhanced predicting accuracy. IntroductionIn the life cycle of any company, while there are many opportunities for growth, prosperity, and success, there are also situations where the company may face decline, crisis, and failure. Theoretically, it is assumed that business companies operate indefinitely with the aim of making a profit.However, in the modern era of the global economy, companies not only become significantly more established but also face financial distress more frequently than in the past. In other words, due to globalization and the integration of national economies, the incidence of business failures and bankruptcies has risen. Financial failure is not an instantaneous event but a dynamic and generally lengthy process that affects the company's capital structure, investment policies, and performance. Therefore, identifying the factors of financial distress enables the prediction of an enterprise's financial distress.Identifying the factors influencing the financial distress of companies, firstly, enables the taking of appropriate actions by providing necessary warnings. Secondly, investors can distinguish favorable investment opportunities from unfavorable ones and invest their resources in situations and places where they are less likely to lose money.Given the importance and effects of financial distress and the high rate of failure of current businesses, a literature analysis in this area appears necessary. A review of the literature in the field of financial distress uncovers a multitude and variety of topics in past research. Thus, it is crucial to conduct a systematic review of past research to understand its intellectual structure. Moreover, the keywords used in past research represent the field’s main ideas and topics. Therefore, this study is going to draw the intellectual structure of financial distress research through quantitative techniques of co-word analysis, citation, co-citation, bibliometric, and co-authorship analysis. Research Question(s)This research, employing bibliometric analysis, reviewed the literature on financial distress in the fields of accounting, management, and economics. It also analyzed the content of articles in this field to answer the following questions:RQ1. What is the trend of publications in financial distress research?RQ2. What is the citation structure in the financial distress research?RQ3. What are the fundamental streams of financial distress research?RQ4. What are the emerging themes in the financial distress research? MethodologyThe research method is based on a three-step protocol: dataset setting, dataset refining, and analyzing the data. First, the published articles in the financial distress field were collected from the Web of Science database. Second, the document information was refined, and 801 articles were chosen for literature review in this area. Finally, we used the bibliometric analysis toolbox to investigate the documents. Additionally, bibliometric analysis in this research was conducted using VOSviewer software. ResultsOur findings indicate an increasing trend in the number of research studies on financial distress literature over the past six years, with approximately 54% of articles published during this period.We also document that "In Search of Distress Risk" is the most cited paper, receiving 881 citations in the Web of Science database; "Altman" is identified as the most influential author; and the USA emerges as the most influential country in this research field. This predominance can largely be attributed to the fact that most journals indexed in the Web of Science in the fields of accounting and finance are associated with the United States. Consequently, it is evident that the publication of articles by universities and researchers based in this country is more prevalent than in other countries worldwide. The findings of this research reveal the existence of six main streams of research: methods of predicting financial distress, predictors of financial distress, restructuring strategy, corporate governance, bank bankruptcy, and earnings management in the field of financial distress. Additionally, the results of the research not only underscore the importance of a company’s social responsibility but also highlight how technological advancements, particularly the use of artificial intelligence tools, have enhanced the accuracy of financial distress predictions. Discussion and ConclusionIn this study, first, the evolution of literature in this field has been reviewed through bibliometric analysis over the last four decades. Secondly, from a performance perspective, the indicators related to the article, citation indicators, and combined article and citation indicators have been examined. Additionally, scientific mapping of articles in this field has been conducted through citation analysis, co-citation analysis, co-authorship analysis, and co-word analysis. Finally, clustering and content analysis of the articles in this field have been performed.First, performance analysis was conducted to answer the first two research questions. The research findings confirm that during the last four decades, the literature on financial distress has significantly grown. Examining the growth trend of the articles’ number indicates the effect of changes in the business environment on financial distress. Thus, this trend shows an increase in the number of articles from 2010 onwards, the reason for which is attributed to the financial crisis of 2008, which caused many companies to face financial distress due to the impossibility of financing. Additionally, the trend of published articles shows a significant increase in articles during the period of COVID-19 and after (2020, 2022, 2023). The limitation caused by this public crisis (COVID-19) has increased the possibility of financial distress for companies, and many researchers have investigated this issue. Secondly, to examine the third question of the research, co-citation and bibliographic coupling analysis have been used. As indicated in the mentioned findings section, the studies conducted can be classified into three clusters: predicting financial distress, which is mainly based on accounting data criteria; a cluster of default risk and systematic risk, which provides information about the prospects of the company and the volatility of assets; and finally, the cluster of restructuring strategies, which includes studies that seek to exit this cycle of financial distress using these strategies. The Bibliographic coupling analysis indicates that six main streams of research (financial distress prediction methods, financial distress prediction factors, restructuring strategy, corporate governance, bankruptcy of banks, and earnings management) exist in the financial distress field.Thirdly, the co-word analysis was conducted to answer the fourth question of the research. The increase in the frequency of the words ‘machine learning’ and ‘social responsibility of the company’ in recent years indicates the development of advanced techniques and models in data mining. This development has become so widespread that a large number of research papers are published every year in many fields, including finance, using techniques and algorithms of artificial intelligence and machine learning. Additionally, regarding social responsibility, this trend suggests the primary purpose of enterprises has shifted from profit maximization to increasing shareholder wealth and protecting the interests of other stakeholders, including society and the environment. Therefore, it is expected that future studies will focus increasingly on social responsibility and sustainability.
َ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 ...
Read More
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.
Accounting tools
Fatemeh Jalali Gorgani; Mohammadreza Abdoli; Hasan Valiyan; Mehdi Safari gerayli; Mohammad Mehdi Hossini
Abstract
The purpose of this study is evaluation matrix of perspective on the driving forces of legacy accounting. In this study, in terms of the methodological goal, this study is exploratory and from the perspective of the result, it is placed in the category of applied research. The participants in the qualitative ...
Read More
The purpose of this study is evaluation matrix of perspective on the driving forces of legacy accounting. In this study, in terms of the methodological goal, this study is exploratory and from the perspective of the result, it is placed in the category of applied research. The participants in the qualitative part include 12 academic experts and accounting professors who have professional experience in the field of accounting and financial reporting, and in the quantitative part 22 people from managers and board members of companies with the nature of family ownership in this study as a pairwise comparison they participated. The result of this study in the qualitative part indicated the existence of 3 categories, 8 components and 39 themes as drivers of legacy accounting in family ownership, which was confirmed based on Delphi analysis. Then, by choosing 2 factors out of 8 identified components as the basis of scenario creation, 10 themes identified as sub-factors of scenario creation were examined. The result of the acquisition in a quantitative part indicates the existence of 4 scenarios with a favorable situation, which shows that the scenario of the second quarter with the metaphorical title of "Governance Hegemony" was determined to be the most effective driver in the emergence of legacy accounting in family-owned companies. IntroductionFamily-owned companies always face the assumption of opportunism at the level of the capital market from the point of view of market theorists and analysts, the reason for which is the large number of board members affiliated with the company owner or holding management positions in the decision-making structure of this type of companies (Sun et al., 2023). Assuming the acceptance of such an approach, it can be concluded that the method of financial functions and information disclosure is also done with the aim of covering the priorities of those in power in such a structure. Under such conditions, the violation of the rights of the beneficiaries can be considered the most important consequence of investing in these companies (Rezayee Pitenoei et al., 2021). Legacy accounting, as a term in such a structure with family ownership, can be considered a kind of practice in the shadow or parallel to the main accounting method of companies, which is used by the management of these companies to satisfy their opportunistic needs (De Wolf et al., 2020). In fact, legacy accounting is considered to be the result of a method of information disclosure that systematically prioritizes the interests of those in power over the interests of other shareholders. This is done in order to stimulate new investors to invest in the company's shares on the one hand and maintain the loyalty of current shareholders on the other. Additionally, it is used to secure their interests by providing cash for the development of investment plans and projects (Lloyd et al., 1999). Literature ReviewLegacy accounting aims to secure the interests of the majority of family owners by increasing the cost of minority shareholders, both in terms of money and share value (Wild, 2015). In fact, the interests of the majority of the shares, by increasing the members of family ownership through opportunistic accounting procedures, can deepen the conflict of interest between the internal owners (family owners) who control the company and external shareholders. This conflict of interest in legacy accounting procedures manifests in various ways, such as selling the company's products at a lower price to related people, hiring unqualified family members in the company, increasing the salary and benefits of family members, or showing an increase in tax payment. For example, companies often seek to minimize taxes, but some studies based on the accounting practices of family-owned companies show increased tax payments (Xia et al., 2017), as these companies aim to fulfill their financial obligations and seek to enhance their reputation by promoting social responsibility. MethodologyWhen designing the model, it is crucial to consider the execution method, ensuring that the phenomenon under investigation lacks an integrated framework and coordination within the target society, at least in terms of content. Therefore, given the lack of necessary theoretical coherence of the concept of legacy accounting within family-owned companies, as discussed in the theoretical foundations and introduction, this research is categorized as developmental research in terms of the result. The research approach of the current study, in terms of data collection logic, is of a hybrid type. This is because it explores a phenomenon for which there is no comprehensive framework in the theoretical areas of legacy accounting at the level of capital market functions, or where consensus is lacking. Therefore, the analysis of the qualitative part and the reliance on the data theory method are used to present the dimensions of the legacy accounting model as a multidimensional model.For this purpose, Glaser's (1992) emergent approach is used to develop the legacy accounting model through three stages of coding by using interviews with experts. In this approach, the theory emerges from the data, and researchers do not have presuppositions regarding the relationship between the data from the beginning. Additionally, based on the emergent foundation data theorizing strategy, data analysis begins simultaneously with the interviews (Kolayeanmoghadam et al., 2020). In terms of the purpose, this research fallswithin the category of exploratory studies conducted using both quantitative and qualitative models. The present study employs various research methods to address the formulated questions, tailoring each method to the specific needs of the respective department. Therefore, based on the nature of collection, this study can be classified as mixed research. Thus, different methods are employed for data collection and analysis at each stage of this study's analytical processes. ResultThis research, by undertaking through three main steps in the theoretical analysis of foundational data including open coding, selective coding, and core coding, seeks to explore the concept of heritage accounting development based on a theoretical framework. Through 12 interviews conducted across three stages of open coding, central coding, and selective coding, a total of three categories, eight components, and 39 conceptual themes were identified. These dimensions were determined after Delphi analysis to ensure reliability. Next, aiming to formulate future scenarios for evaluating the driving forces behind the development of legacy accounting in family ownership, the most effective axes for this evaluation were determined using the Micmac matrix by identifying the inputs and outputs of the matrix model. As a result, this section confirmed governance opportunism and behavioral opportunism as the primary driving factors influencing legacy accounting in family-owned companies. Subsequently, through the reciprocal matrix, scenarios describing the driving forces in the emergence of this accounting practice were determined. ConclusionThe term hegemony means the dominance of a group of power holders over others. The extension of this concept to the mechanism of governance refers to the fact that a powerful person as an owner, in an effort to protect their interests, tries to make arbitrary appointments based on the level of loyalty to the person in power. Decisions should be made solely to achieve the goals and visions set by the powerful person. In this governance structure, while the size of the board of directors may adhere to rules and requirements, the absence of conflict of interest and diversity of views within the board compromises its ability to effectively monitor the company's operations, leading to decisions primarily aligned with the owner's objectives. In such structures, the board of directors often lacks the necessary independence to make decisions contrary to the opinions of those in power. Instead, they merely symbolically apply external supervision to maintain market stability. In general, the scenario of hegemonic governance shows the promotion of the dominant values and culture of the power holders in a company, which is a model of the pervasive dominance of their ideas and opinions over the entire company. Additionally, this result indicates that legacy accounting within such a regulatory process serves as an instrumental approach, a lever to advance governance goals in family companies. By selectively disclosing news and information to stakeholders, it seeks to protect the interests of these individuals or the so-called powerful person
stock exchange
Behrooz Badpa; Sohrab Osta; Fatemeh Darvish-Hoseini
Abstract
Working capital management is crucial for business growth and survival as it maximizes enterprise value and shareholder wealth, thereby maintaining competitive conditions and optimal performance. This study identified and explained accounting variables determining operational efficiency (OE) of the companies ...
Read More
Working capital management is crucial for business growth and survival as it maximizes enterprise value and shareholder wealth, thereby maintaining competitive conditions and optimal performance. This study identified and explained accounting variables determining operational efficiency (OE) of the companies listed on the Tehran Stock Exchange (TSE), Iran, in light of working capital items. The statistical population consisted of all companies, and the samples were 112 cases listed during 2016-2020. Utilizing an applied, descriptive-correlational research design, the relationship between the variables was then established. The dependent variable was OE, evaluated using data envelopment analysis (DEA); and the independent ones were working capital items and dividend growth rate. To investigate the effect of the independent variables on the dependent one, eight hypotheses were formulated, and multivariate linear regression with panel data in a fixed-effects model was implemented. Testing the hypotheses at a 95% confidence interval demonstrated that average period of collection of claims, average debt repayment period, dividend growth ratio, cash holding level, and liquidity ratio have a significant positive effect on OE. Nevertheless, the cash conversion cycle, and average inventory turnover period have negative impacts. Managers are thus suggested to identify working capital items and exploit them along with short/long-term goals in companies. This is practical in evaluating financial flexibility and solvency, facilitating optimal liquidity, and increasing business profitability and performance. Furthermore, learning about such items is helpful to investors, creditors, and analysts to make optimal decisions. IntroductionWorking capital management in companies plays a key role in their growth and survival. This business process also helps increase the value of such entities and maximize their shareholder wealth, thereby maintaining competitive conditions and optimal performance. Representing the management of current resources and expenses in a company, working capital management has two components, namely, the management of current assets and liabilities, whose balance is of utmost importance. Decisions made about each one can affect the other (Jahan Khani & Talebi, 1999). On the word of Nath et al. (2010), working capital items have a critical role in the operational efficiency (OE) of a company as well as its marketing capability. In this line, Fang et al. (2008) also believe that working capital items have high liquidity, and are directly associated with the operating results and efficiency of a company, so managing cash in the short term is especially relevant for competition in markets. Therefore, the main items in working capital can significantly shape the operating results in a company, including contribution margin, market share, and OE. Against this background, the present study is to identify and explain the accounting variables determining the OE of the companies listed on the Tehran Stock Exchange (TSE), Iran, in light of the working capital items.Materials & MethodsConsidering the type of supervision and the degree of control, this study is categorized as field research, because the variables were investigated in their natural state. With regard to the data collection method, this study is placed into documentary research. Utilizing an applied, descriptive research design, the relationship between the given variables was established via a correlational study. The statistical population comprised the companies listed on the TSE, Iran, and the study samples included 112 cases listed during 2016-2020. The dependent variable was OE, evaluated using data envelopment analysis (DEA), and the independent variables were working capital items and dividend growth rate. Profitability index, company size, financial leverage, and operating cash flow (OCF) were correspondingly deemed as the control variables in the research model. To shed light on the effect of the independent variables on the dependent one, eight hypotheses were initially formulated, and then multivariate linear regression using panel data in a fixed-effects model was implemented to test them. In order to analyze the data and interpret the results, descriptive and inferential statistics were ultimately utilized.FindingsUpon presenting the descriptive statistics and checking the assumptions of the regression as well as determining themost suitable research model, the linear regression equation was estimated using the fixed-effects model, as described in table 1Discussion & ConclusionAs confirmed by the study findings, working capital items can explain the OE of the companies listed on the TSE, Iran. In this respect, the results of testing the main research hypothesis are consistent with the reports by Sun et al. (2020) and Nath et al. (2010). The outcomes of testing the secondary hypotheses also reveal a significant positive relationship between the variables of average period of collection of claims, average debt repayment period, dividend growth ratio, cash holding level, and liquidity ratio and the variable of operational efficiency. Nevertheless, there is a significant negative relationship between the variables of cash conversion cycle and average inventory turnover period and operational efficiency.Considering these results, cash holding level and liquidity ratio have a positive effect on operational efficiency, which supports the findings in Nath et al. (2010). According to Nath et al. (2010), working capital items with high liquidity help improve the OE of a company, indicating its high capability to manage cash in the short term, as a requirement for its competitive presence in markets. The study results also agree with those concluded by Afrifa et al. (2022) that holding more cash facilitates working capital efficiency. Based on the study findings, average inventory turnover period has a negative effect on OE, in harmony with the results in Deloof (2003) that high inventory level declines the profitability and performance of a company. In his opinion, managers can increase the profitability and performance of businesses by reducing inventory levels. In view of the cash conversion cycle in the given companies during the study period here, the relationship between this variable and OE is negative, which is consistent with the results in Abdulla et al. (2017) that companies with higher cash conversion cycle are more efficient in managing their working capital as compared with other entities.From this perspective, managers are suggested to identify the role of working capital items and exploit them in line with the short/long-term goals in companies. This is practical in evaluating financial flexibility and solvency, and facilitates achieving optimal liquidity, and subsequently increasing business profitability and performance. Furthermore, learning about the role of working capital items is of assistance to investors, creditors, and analysts to make optimal decisions. Furthermore, it is possible to carry out the same study in the future with respect to the size and type of industry of the companies listed on the TSE, Iran, and complete a comparative study regarding the companies operating in each industry. Besides, it is recommended to analyze the effect of various working capital strategies on economic added value in a separate study. Investigating the effect of various strategies and components of working capital on stock price and its fluctuations should also be the subject of further research.
