Empirical Studies in Financial Accounting

Abstract Financial scandals and crises observed in many countries as a result of the manipulation of financial reports have led to a loss of trust among investors and stakeholders in financial information. This lack of trust in financial reporting and the low quality of financial information flows can act as a deterrent to attracting investment. In the present study, data from 148 companies listed on the Tehran Stock Exchange over a 12-year period (2012-2023) were analyzed. For hypothesis testing, the collected data were classified into 11 distinct groups. To assess cosmetic earnings management related to the rounding of earnings figures across life cycle stages, Benford's Law was applied. The Chi-square test was used to compare the observed (actual) frequencies of earnings figures with the expected frequencies based on Benford’s distribution. The findings indicate that for both high- and low-audit-quality companies, across all three life cycle stages—growth, maturity, and decline—there is no statistically significant difference between the observed and expected frequencies. Therefore, the earnings figures in all examined stages conform to Benford's distribution and show no signs of cosmetic earnings management. Future research is encouraged to conduct similar analyses at the industry level and to incorporate additional audit quality indicators, such as auditor turnover, auditor tenure, and auditor size Introduction Investors, who are the economic pulse of the financial industry, seek to be fully and transparently informed about the developments and events occurring in business units. Benford distribution (1938) can be considered one of the tools used to evaluate financial reports. Benford’s distribution is an analytical process that compares actual results with expected results to identify abnormal transactions. This distribution, also known as the first-digit law, is a type of empirical observation that states that the first digits in many numerical data sets are distributed in a specific, non-uniform manner. In other words, Benford’s distribution indicates that, for each digit position (from the first to the fourth digit), the probabilities of the digits one through nine are unequal, and lower digits occur more frequently than higher digits. Therefore, the probability of smaller digits appearing in the leading position is higher than that of larger digits. The rounding of financial figures often occurs when the observed distribution of numbers deviates slightly from the expected distribution. Any manipulation of figures, if carried out deliberately, can be considered a self-serving behavior, although such actions may serve the interests of the business unit or certain individuals. In view of the above, the purpose of this study is to investigate the extent to which profit figures of firms listed on the Iranian stock exchange are trimmed to achieve rounding aligned with managers’ personal interests. In line with the objectives of the research, the following questions are raised: Does high or low audit quality affect the extent to which profit figures are trimmed? Across the different life cycle stages under study, does profit trimming occur when audit quality is present or absent? Literature Review The Benford distribution was first introduced by Simon Newcomb (1881), an American mathematician who discovered a pattern in logarithmic tables. At that time, academics did not pay attention to Newcomb's research, and it was not until Frank Benford (1938), a physicist at General Electric, that this phenomenon was revisited and formally examined. Benford examined a set of natural data (20,229 randomly selected observations) such as baseball statistics, death rates, stock market prices, atomic weights in chemical compounds, Fibonacci numbers, river lengths and lake areas, urban population and census data, books and magazines, and similar datasets. Finally, he confirmed the distribution observed by Simon Newcomb, showing that in numerical data, there is a tendency toward smaller leading digits, and the repetition of the digits one and two is more frequent than that of the digits eight and nine. Following increased academic interest, this distribution was officially named and became known as the Benford distribution. However, research in this area did not progress as expected until Roger Pinkham (1961), a professor of mathematics, provided a mathematical proof of this phenomenon. Subsequently, the American mathematician Hill (1995) theoretically demonstrated, using a form of the influential central limit theorem in statistics, that the first digit follows this principle (Benford distribution). Based on his studies, Hill found that if the distribution of digits occurs randomly and random samples are extracted from that distribution, the resulting distribution will converge toward the logarithmic distribution (Benford's law), which can also assist in the interpretation and prediction of digital patterns. Motivations related to profit embellishment in Iranian business units may differ from those in Western countries (Pourheidari and Hemmati, 2004). In studies conducted by He and Gan (2014) on the financial reports of Japanese business units, they found that applying Benford's law to profit and income accounts revealed that profit embellishment differs across industries, and that profit embellishment is more pronounced than income embellishment. In a study by Lennox et al. (2018), the authors examined profit embellishment, auditor adjustments, and the financing of business units, focusing on the magnitude of auditors' profit adjustments during financing events. They found that in the pre-financing stage, the magnitude of auditor adjustments that reduce reported profits is significantly large. Methodology The present study can be considered an applied study in terms of its purpose. The information was extracted using a purposive sampling method. This study seeks to design a model based on empirical observations, and the data used in the study are quantitative. The present study seeks a general result; therefore, it is both deductive and inductive in terms of the type of reasoning and conclusion. The present study covers all business units listed on the Tehran Stock Exchange during the period from 2012 to 2023, and accordingly, the final sample was selected using the systematic elimination method. Results The first main hypothesis states that the life cycle stages (growth, maturity, and decline) have a significant effect on the utilitarian neatness of the profit figures of business units. To test this hypothesis, given that it must be examined across three stages (growth, maturity, and decline), the analysis was conductedseperately for each stage. The first sub-hypothesis states that in the growth stage, there is no neatness in profit figures, and the distribution of companies' profit figures follows the Benford distribution. The results of the first sub-hypothesis indicate that the significance level for the second digit of profit figures is less than 0.05. Therefore, the null hypothesis, which states that there is no significant difference between the actual (observed) frequency and the expected frequency, is rejected. The significance level for the first, third, and fourth digits of profit figures is greater than 0.05, indicating that there is no significant difference between the actual frequency and the expected frequency. In addition, the test statistic for the second digit is higher than those for the first, third, and fourth digits. Therefore, the first sub-hypothesis is accepted. Discussion The results obtained from the hypothesis tests indicate that these findings differ from those of studies conducted in other parts of the world. Although the results of the current study indicate a lack of order in the profit figures of units listed on the Tehran Stock Exchange during the period from 2012 to 2014, it is not possible to state with complete certainty that there is a lack of order in these companies, as this phenomenon may manifest differently across industries and to varying degrees. Conclusion The existence of a phenomenon called rounding in the profit figures of business units during their life cycles is not supported by the Chi-square test. The results obtained indicate the absence of profit tidying by management in the profit figures of the sample under study. The results of the research also show that audit quality (high and low) has no effect on the presence or absence of tidying, and that no tidying is observed in the profit figures across different stages of the life cycle.

Abstract This study investigates the effect of earnings per share (EPS) disclosure pressure on the level of environmental information disclosure among companies listed on the Tehran Stock Exchange, with an emphasis on the moderating role of corporate governance. Using data from 110 firms over the period 2012-2023 and employing a panel data approach, the results indicate that pressure to disclose EPS has a significant negative impact on environmental disclosure levels. Meanwhile, corporate governance mechanisms, through enhanced transparency and oversight, can help mitigate this adverse effect. However, the findings reveal that corporate governance has not been fully effective in moderating the negative influence of EPS disclosure pressure on environmental disclosures. These results provide valuable insights for policymakers and corporate managers aiming to strengthen governance frameworks and improve the quality of environmental reporting. Introduction In emerging capital markets, listed firms increasingly operate under dual, and potentially conflicting, pressures: capital market expectations to meet or exceed earnings per share (EPS) benchmarks, and growing stakeholder demands for transparent environmental reporting. While EPS targets sharpen the focus on short-term profitability, they may also create incentives to downplay or delay disclosures that highlight environmental risks and costs. Prior evidence on the relationship between earnings pressure and environmental disclosure is scarce and primarily drawn from developed markets, where regulatory enforcement and governance infrastructures differ markedly from those in developing economies. Against this backdrop, the present study examines whether EPS disclosure pressure reduces the extent of environmental disclosure and explores the potential moderating role of selected corporate governance mechanisms in the context of the Tehran Stock Exchange.   Literature Review The literature on sustainability reporting highlights environmental disclosure as a primary channel through which firms seek legitimacy, respond to regulatory and societal pressures, and communicate long-term strategic commitments. Studies grounded in legitimacy theory suggest that firms expand environmental reporting when facing public scrutiny, whereas agency-based analyses emphasize that managers may strategically withhold or bias such information if it threatens their private benefits. Research on earnings pressure shows that managers under tight EPS targets may engage in real activities management, accrual manipulation, or selective disclosure to maintain a favourable financial narrative, but only a few studies explicitly link EPS-related pressures to non-financial reporting, particularly environmental disclosure. At the same time, corporate governance characteristics, such as institutional ownership, board independence, and CEO tenure, are argued to constrain opportunistic behaviour and enhance transparency, although evidence from emerging markets indicates that governance structures may be less effective where ownership is concentrated, and investor protection is weak. This study extends the literature by integrating these strands into a single framework and providing evidence from an underexplored institutional setting. Methodology The empirical analysis is based on an unbalanced panel of 110 non-financial firms listed on the Tehran Stock Exchange over the period 2012–2024. Environmental disclosure is measured using a six-item checklist applied to annual reports and board of directors’ reports, covering pollution prevention, waste reduction, recycling initiatives, conservation of natural resources, compliance with environmental regulations, and investments in environmentally friendly technologies. The firm-year disclosure index is calculated as the ratio of disclosed items to the total number of items. EPS disclosure pressure is operationalized as a composite index obtained via factor analysis of several proxies that capture both financial dynamics and managerial incentives, including EPS growth pattern and volatility, overinvestment as a proxy for managerial overconfidence, managerial ability scores derived from a data envelopment analysis framework, industry competition measured by a sales-based Herfindahl–Hirschman index, and a market-specific investor sentiment indicator. Corporate governance is captured through a separate factor-based index that combines the presence of institutional blockholders, the proportion of independent directors on the board, and CEO stability, defined as the absence of CEO turnover in the previous two years. Panel regression models with firm and year fixed effects are estimated, controlling for firm size, leverage, profitability, loss status, inventory and receivables intensity, auditor size, audit opinion type, and liquidity. Standard panel-data diagnostics and robust estimation techniques are employed to address multicollinearity, autocorrelation, and heteroskedasticity. Results The regression results show a negative and statistically significant association between EPS disclosure pressure and the level of environmental disclosure, indicating that firms exposed to stronger pressure to maintain favourable EPS figures tend to provide less extensive environmental information. This effect remains robust across alternative specifications and after controlling for firm-specific, industry, and time-varying factors. The composite corporate governance index exhibits a positive and significant relationship with environmental disclosure, suggesting that firms with higher institutional ownership, more independent boards, and more stable executive leadership are generally more inclined to report on environmental issues. However, the interaction term between EPS disclosure pressure and the governance index is not statistically significant, implying that the selected governance mechanisms do not materially mitigate the adverse impact of EPS pressure on environmental disclosure. Additional sensitivity analyses confirm that the main inferences are not driven by outliers, alternative variable definitions, or different estimation approaches. Discussion These findings suggest that, in the examined emerging-market context, environmental disclosure is treated by managers as a discretionary margin that can be curtailed when the pressure to meet EPS expectations intensifies. From a legitimacy-theory perspective, managers appear to prioritize the short-term legitimacy gained from delivering target EPS over the longer-term legitimacy associated with transparent environmental reporting. From an agency-theory viewpoint, the results reflect a misalignment between shareholders’ broader interest in credible sustainability disclosure and managers’ incentives tied to short-term financial performance. The positive direct effect of corporate governance on environmental disclosure indicates that stronger monitoring and oversight can foster more extensive reporting; yet the lack of a significant moderating effect reveals the limitations of these governance arrangements when confronted with intense EPS pressure. In markets characterized by concentrated ownership, evolving regulation, and relatively weak enforcement, formal governance structures may improve average transparency but remain insufficient to prevent managers from sacrificing environmental communication under earnings stress. Conclusion The study contributes to the literature by developing a multidimensional measure of EPS disclosure pressure, focusing specifically on environmental disclosure in an emerging capital market, and assessing the conditional role of corporate governance. The evidence shows that EPS-related pressures systematically undermine environmental transparency, and that conventional governance attributes, while beneficial on average, do not fully counteract this effect. These insights have important policy implications: regulators and standard setters may need to strengthen environmental reporting requirements, refine enforcement mechanisms, and encourage performance evaluation frameworks that balance EPS outcomes with sustainability metrics. Boards and institutional investors should also reconsider compensation and monitoring practices that place excessive weight on short-term earnings targets and pay closer attention to the consistency and completeness of environmental disclosures. Future research could extend this analysis by exploring alternative dimensions of sustainability reporting, employing dynamic panel estimators to better address endogeneity concerns, and conducting cross-country comparisons to examine how institutional differences shape the interplay between earnings pressure, governance, and environmental disclosure.  

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 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 Election

Introduction

The 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 Review

Kim 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.

Methodology

This 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.

Results

The 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.

Conclusion

The 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).

Abstract The purpose of this research is to investigate the moderating role of conservatism in the relationship between audit quality and earnings management. The current research is analytical and correlational. Furthermore, this study is considered quantitative based on the nature and characteristics of the data used to analyze the hypotheses. Data collection involved first using the library method, followed by statistics provided by the Tehran Stock Exchange Organization. The findings obtained from the regression model, based on a sample of 110 companies listed on the Tehran Stock Exchange over an 8-year period from 2015 to 2022, indicate that audit quality has an inverse and significant relationship with earnings management. Additionally, it was found that conservatism influences the relationship between audit quality and earnings management. The results concluded that conservatism reduces earnings management by recognizing losses promptly and delaying the recognition of profits. Since audit quality reduces information asymmetry, it limits profit manipulation through earnings management. In this context, conservatism plays a vital role in restricting managers' opportunistic reporting. Also, conservatism diminishes the company's incentives for earnings management, thereby reducing biases caused by managerial opportunism in accounting. Consequently, conservatism is expected to have a moderating role in the relationship between audit quality and earnings management, and the findings of this research confirm these expectations.
Introduction
The objective of this research is to investigate the moderating role of accounting conservatism in the relationship between audit quality and earnings management. In today's capital markets, earnings management has become a critical concern. It is a tool used by company management to influence earnings so that the numbers reach a predetermined target. This approach is employed for various reasons, one of which is earnings smoothing. As a result, instead of experiencing years of abnormally high or negative earnings, companies aim to maintain relatively stable results by employing innovative accounting tactics (Ismail et al., 2022). The main objective of financial statement auditing is to assure users that the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). According to IFRS, financial reporting must provide truthful information, ensuring that financial statements accurately present the information they claim to provide. It is therefore logical that audit quality has an inverse relationship with the occurrence of earnings manipulation (Ismail et al., 2022). There is also substantial research suggesting that the level of accounting conservatism may reduce the practice of earnings management (Chen et al., 2007; Ball et al., 2000; Khan & Watts, 2009; Aminu & Hassan, 2018; Li et al., 2018). Chen et al. (2007) argued for the existence of a trade-off in conservative practice. Adopting the principle of conservatism may lead to more noise in accounting reports, potentially reducing the value of the stewardship role. On the other hand, this principle may decrease the practice of earnings management. However, Chen et al., (2007) asserted that under reasonable conditions, the reduction in earnings management is sufficient to compensate for the noise caused by excessive accounting conservatism. Legislators, standard setters, and academics have expressed concern that companies use conservative accounting coverage to manage earnings (AICPA, 1939; Devine, 1963; FASB, 1980; Levitt, 1998; Penman, 2001). A significant number of previous studies link the effects of earnings management to audit quality issues (Chowdhury & Eliwa, 2021). The importance of this research lies in its effort to fill the gap in understanding the moderating role of accounting conservatism in the relationship between audit quality and earnings management.

Methodology

Research Type: Based on its objective, this research falls under the category of applied research. Applied research uses the theories, principles, and techniques developed in basic research to address practical, real-world problems. In terms of methodology and nature, this research is a correlational study. Additionally, it is considered descriptive research, as the researcher does not intervene in the position, state, or role of the variables. The research method is inductive.
Data Collection: Data collection will be conducted in two stages. In the first stage, a literature review will be performed using library resources and specialized Persian and English texts to establish the theoretical and conceptual framework of the research. In the second stage, financial data for the research will be extracted from the financial statements of companies listed on the Tehran Stock Exchange.
Data Analysis: Eviews software will be used to analyze the collected data.
Population and Sample: The population of this study includes all companies listed on the Tehran Stock Exchange between 2015 and 2022 (eight years). After applying the necessary limitations, the sample size for this research will consist of 110 companies listed on the Tehran Stock Exchange, representing 880 company-years. It is important to note that only listed companies are included in the study.

Result

Hypothesis 1: To test the first hypothesis of the study, Model (1) was used. The results of the model estimation show that the coefficient of audit quality (0.3645) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. Among the control variables, firm size, sales growth, and research and development expenses exhibit a positive and significant relationship with earnings management, while financial leverage shows a negative and significant relationship. Additionally, it was found that book value, operating expenses, and sales volatility do not have a significant relationship with earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (3674.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.0803) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains approximately 53% of the variation in total. Based on these results, the first hypothesis of the study is not rejected at the 5% confidence level.
Hypothesis 2: To test the second hypothesis of the study, Model (2) was used. The results show that the coefficient of the audit quality variable (0.6577) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. The coefficient of the conservatism variable (0.7305), significant at the 10% level, reveals a significant inverse relationship between conservatism and earnings management. Finally, the combined coefficient of determination for audit quality and conservatism (0.5913) is significant at the 5% level, indicating that conservatism moderates the relationship between audit quality and earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (1893.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.1972) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains about 51% of the variation in total. Based on these results, the second hypothesis of the study is not rejected at the 5% confidence level.

Conclusion

The results of the test for the first hypothesis indicate a significant inverse relationship between audit quality and corporate earnings management. Low audit quality occurs when audited financial statements contain errors that the auditor has not identified or disclosed in their report. Therefore, audit quality can be associated with the quality of financial reporting, as higher audit quality ensures higher reporting quality. The presence of audit quality reduces in information asymmetry, which in turn decreases earnings manipulation through earnings management. These results are consistent with the research of Hanoun et al. (2010), Alzoubi (2017), Fatahi Nafchi, and Fazel Dehkordi (2018), and Khajavi and Maimand (2015). The results of the test of the second hypothesis show that conservatism has a moderating effect on the relationship between audit quality and earnings management. Audit quality reduces information asymmetry, which subsequently decreases earnings manipulation through earnings management. In this context, conservatism plays an important role in restricting opportunistic reporting by managers. Furthermore, conservatism reduces a company's motivation for earnings management, thereby mitigating the biases caused by opportunism in accounting.
 
 

Abstract Assets are crucial for companies' current and future decisions, significantly influencing investors' perceptions. This study investigates the relationship between accounting asset informativeness and investors' beliefs, with a focus on the impact of accounting earnings quality. A sample of 249 companies listed on the Tehran Stock Exchange between 2013 and 2023 was selected for analysis. The results indicate that increased asset informativeness positively influences investors' beliefs at both the aggregate and discretionary levels. However, asset informativeness related to inherent factors does not impact investors' beliefs. Furthermore, low earnings quality does not weaken the relationship between asset informativeness at the aggregate level and discretionary factors with investors' beliefs.

Introduction

Investors' beliefs and expectations play a crucial role in their decision-making process and behavior. Assets are a key factor in a company's present and future decisions, significantly influencing investors' confidence. Accounting assets help reduce uncertainty about a share's true value and shape people's expectations of the company. In other words, they contain valuable information, reflecting high accounting asset informativeness. Notably, accounting asset informativeness is distinct from earnings indicators. As a result, low earnings quality does not affect investors' beliefs due to the presence of accounting asset informativeness. Therefore, earnings quality may not influence the correlation between accounting asset informativeness and investors' beliefs. Based on this, the research aims to explore the connection between accounting asset informativeness and investors' beliefs, with a focus on the influence of accounting earnings quality. The researchers propose two hypotheses: Accounting asset informativeness positively impacts investors' beliefs, and earnings quality does not moderate the influence of accounting asset informativeness on investors' beliefs.

Methodology

This study focuses on applied research. Accounting asset informativeness is the independent variable, calculated using the explanatory power of the regression of a company's net operating assets on its operating earnings. A 10-year rolling regression was conducted separately for each company. Investors' beliefs were the dependent variable, and the earnings quality served as the moderating variable. Earnings quality was determined based on four criteria: earnings stability, earnings smoothing, accruals quality, and the relationship between earnings and value. The study included a sample of 249 companies listed on the Tehran Stock Exchange, spanning from 2013 to 2023.

Results

The information provided by accounting assets has a positive impact on investors' beliefs at both the aggregate and discretionary levels. However, this information does not affect investors' beliefs when it comes to intrinsic factors. Additionally, low earnings quality does not weaken the relationship between accounting asset information at the aggregate level and discretionary factors with investors' beliefs.

Discussion

According to neoclassical investment theory, changes in a company's market value reflect investors' assessments of its intrinsic value based on available information. Therefore, the informativeness of a company's accounting assets can affect its stock performance. When a company's capital stock is inaccurately measured by its accounting assets, changes in market value will have a greater impact than changes in accounting assets. On the other hand, when accounting assets are measured with less error, they provide more accurate information about the company's resources. Investors use this information to estimate the market value of a company's stock and form expectations about its intrinsic value. If accounting asset informativeness is strong, investors rely on asset information to analyze the intrinsic value of the stock. It seems that even if the quality of earnings is weak, it does not significantly impact investors' decision-making. Therefore, low earnings quality cannot disrupt the relationship between accounting asset informativeness and shareholders' expectations.

Conclusion

Based on the findings, investors and financial statement users should consider asset informativeness when determining the true value of a share. It is important to note that financial statement information is not limited to profit and loss but also includes the measurement of assets on the balance sheet.
Creditors should not focus solely on profit and loss in their debt agreement; they should also consider the company's assets as a result of its current and future decisions. It is recommended that standard setters use asset informativeness to evaluate the effects of policy changes and balance sheet asset measurement changes to improve the implementation of accounting standards.
Analysts should consider asset informativeness as a fundamental factor during analysis, especially when earnings quality is low. Additionally, company managers and planners should specify the purpose of obtaining operational assets and the capacity of those assets during financial reporting to attract the attention of investors and creditors.
 

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 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.