The presentation of the impact assessment pattern of Corporate Governance mechanisms on the Earnings Management in Tehran Stock Exchange

Subject Areas : Management Accounting

فریدون رهنمای رودپشتی ¹ (ندارد)
فرشاد هیبتی ² (ندارد)
قدرت اله طالب نیا ³ (ندارد)
سیدعلی نبوی چاشمی ⁴ (ندارد)

Received: 2010-11-11 Accepted : 2012-05-21 Published : 2012-06-09

Keywords: earnings management, Institutional shareholders, board composition, Corporate Governance,

Abstract :

The role of corporate governance is to reduce the divergence of interests betweenshareholders and managers. The role of corporate governance is more useful whenmanagers have an incentive to deviate from shareholders’ interests. One example ofmanagement’s deviation from shareholders’ interests is the management of earningsthrough the use of accounting accruals. Corporate governance is likely to reduce theincidence of earnings management. Corporate governance is also likely to improveinvestors’ perception of the reliability of a firm’s performance, as measured by theearnings, in situations of earnings management. Prior studies show different results ofthe association between corporate governance mechanisms and earnings management.The primary objective of this dissertation is to examine the association betweencorporate governance internal mechanisms (ownership concentration, boardindependence, CEO dominance and board size) and external mechanism (institutionalshareholders) and earnings management. Firm size and leverage are control variables.The population used in this study comprises firms listed on the Tehran StockExchange (TSE) between 2004 and 2008, the sample comprises 196 firms. Panel Datamethod is employed as technique to estimate the model. Also, hypotheses examinedin different industries. I find that firms with higher ownership concentration and boardindependence manage earnings less, while firms with higher institutional holdingsmanage earnings more, but No evidence of significant association was found betweenthe existence of CEO-Chairman duality and earnings management. This study alsofound a positive significant association between firm size and leverage and earningsmanagement.