مجله پیشرفت های حسابداری
سال ششم شماره 2 (پیاپی 67، پاییز و زمستان 1393)

Growing empirical and systematic evidence supports the argument that earnings management is a common practice in firms (Healy 1985, Perry and Williams 1994 and Defond and Jiambalvo 1994). A fundamental question posed for accounting research is to identify the environmental conditions under which accounting choices are made by managers. It is obvious that managers have private information about the firm and its financial condition that shareholders do not have (i.e., there is information asymmetry between managers and shareholders). This paper examines how information asymmetry between managers and investors impacts the level of earnings management practiced by managers of companies listed on the Tehran Stock Exchange. Hypothesis: As mentioned before, the purpose of this study is to investigate the relationship between information asymmetry and earnings management in companies listed on the Tehran Stock Exchange. So the main hypothesis of the paper is as follows: The magnitude of information asymmetry has a statistically significant effect on the level of earnings management.

We choose five proxies for measuring the extent of information asymmetry for TSE listed firms. These variables are selected with respect to the socioeconomic condition of the Tehran capital market and related literature. These five proxies are as follows:Volume of Trade: Turnover is defined as trading volume divided by outstanding shares.Volatility of Stock Prices: We measure this proxy variable as the dispersion in the daily stock returns in the year. P/E Ratio: the price to earnings ratio is measured as stock price divided by earnings per share. Number of Trading Days: This measure is defined as the number of firm’s stock trading days in a given year. Firm Age: This proxy is measured as the number of years from the date of listing on the TSE.In this paper, we use a comprehensive measure by constructing an index of asymmetric information based on the various dimensions of the concept. Our information asymmetry index (IAindex) is based on the percentile rankings of each proxy. The measure of the managed accounting accrual used in this research is estimated using the Jones model as modified by Kothari, Leone and Wasley (2004), Using IAindex as a composite measure of information asymmetry between the firm and the market, we propose the following model to examine the relationship between earnings management and information asymmetry: Where: DACC is the discretionary (managed) accounting accruals under modified Jones model as modified by Kothari, Leone and Wasley (2004) using the cross-section estimation approach, IAindex is the information asymmetry index which is measured by compositing five important and relevant proxies (volume of trade, stock price variation, P/E ratio, numbers of trading days and firm age), DEBT is the ratio of long-term debt divided by the book value of equity, MKTBV is market capitalization divided by the book value of equity, SIZE is natural log of the market capitalization, GROWTH is net revenues for the current year less net revenues for the previous year scaled by net revenues for the previous year. The population of this study consists of all Iranian non-financial firms listed on the Tehran Stock Exchange (TSE) over 9 years (2000 to 2008) which should satisfy our data criteria. Based on the above criteria, 119 firms are selected for data collection.

In order to select the appropriate method of estimation among OLS the pooled model, Fixed Effects (FE), and Random Effects (RE) we applied the Chow and Hausman tests using Eviews 7. The results show that we should run the regression model through panel data analysis with random effect procedure. The results of running the main regression model of research after considering the suitable procedures show that the coefficient of IAindex is positive and statistically significant with the expected sign. Also, we find that the SIZE has a negative and significant effect on earnings management and there is no statistically significant relationship between other used control variables and earnings management magnitude. Discussion and

In this research we investigated the effect of information asymmetry on the level of earnings management practiced by companies listed on Tehran Stock Exchange. We did this by using five proxies for measuring information asymmetry which are suitable and applicable with respect to the socioeconomic environment of the TSE. The empirical results show that the information asymmetry index (IAindex) which is a composition of the selected information asymmetry proxies has a positive and statistically significant effect on the extent of earnings management. In particular, the results suggest that firms for which investors have more information are less likely to manipulate accruals for managing earnings. The main reason is that when information asymmetry is high, investors do not have the necessary information to undo the manipulated earnings (Richardson 1997). Given the severe adverse consequences that earnings manipulations can lead to, regulators have started to take actions to curb opportunistic earnings management. Reducing the discretion that managers have in accounting choices through setting more standards and regulations may be one solution. But an unintended consequence of this type of policy is that it may reduce the general usefulness of accounting earnings, given that managers sometimes use their discretion to signal their private information (for example, Subramanyam 1996). Furthermore, curbing earnings management by restricting managers’ choices is very unlikely to succeed because managers can always circumvent regulations using innovative accounting methods and transaction structuring. If transparent information flow in the capital markets can attenuate the incentives that managers have for earnings management, regulatory bodies should probably focus more on promoting more efficient dissemination of firm-specific information in the market. For getting more information flow in the capital markets, we should insist on the role of information intermediaries such as capital market related media, financial analyzers, powerful brokerage firms, investment banks, financial and credit ranking companies and so on.

Earnings can be divided into two components: cash flow and discretional accrual. As earnings with more accrual components are easily manipulated than those with more cash flow, earnings with less discretionary accrual are regarded as having better earnings quality. The reaction of investors to trading information is directly reflected in price adjustments, which is an important aspect of market efficiency. The empirical results show that the asymmetric price adjustment does indeed exist, with the speed of price adjustment to good news being faster than that to bad news. In this paper we examine whether the speed of price adjustment exhibits an asymmetric reaction to good and bad news, and further examine whether such an association will accelerate following the changes of earning quality using Tehran Stock Exchange (TSE) Corporation data. Research hypotheses: To achieve the purpose of this study, five research hypotheses are chosen. These hypotheses are as follow: 1. There is a significant and positive relationship between Earnings Quality (Dechow & Dichev model) and the speed of price adjustment to good news changes. 2. There is a significant and positive relationship between Earnings Quality (Ball and Shivakumar model) and the speed of price adjustment to good news changes. 3. There is a significant and positive relationship between Earnings Quality (Dechow & Dichev model) and the speed of price adjustment to bad news changes. 4. There is a significant and positive relationship between Earnings Quality (Ball and Shivakumar model) and the speed of price adjustment to bad news changes. 5. The speed of price adjustment to bad news is faster than to good news. Methods & Variables: Firms in the statistical population of this study are the companies accepted in Tehran Stock Exchange from 1385 to 1389; 68 companies are selected by applying systematic sampling to select the sample population. In this study, we used multiple regression models to examine the first to fourth hypotheses. In order to test the fifth hypotheses, we examine whether or not the asymmetric price adjustment to news exists using the Wilcoxon signed-rank test. In the present research, three kinds of variables were employed: Independent variables, dependent variables and control variables. Independent variables of this research are changes in Earnings quality based on Dechow & Dichev model and Ball and Shivakumar model. Dependent variables of this research are the changes in the speed of price adjustment to good news and the changes in the speed of price adjustment to bad news. The control variables of this study are as follows: Number of trades (NT), Market Capitalization (MV), Stock Return Volatility () and Stock Price (P), to be included into the regression analyses to ascertain robust results. The results of estimating the first and second hypotheses indicate that there is a positive relationship between Earnings Quality (Dechow & Dichev and Ball and Shivakumar models) and the speed of price adjustment to good news changes, but this relationship is not significant. The obtained results from estimating the third and fourth hypotheses shows that there is a positive relationship between Earnings Quality (Dechow & Dichev and Ball and Shivakumar models) and the speed of price adjustment to bad news changes, but this relationship isn’t significant. The results of estimating the fifth hypothesis indicate that the speed of price adjustment to bad news isn’t faster than that to good news in the Tehran Stock Exchange (TSE). Also the result shows that there is a significant and positive relationship between firm size and the speed of price adjustment to bad and good news changes. There is a significant and positive relationship between Stock Return Volatility and the speed of price adjustment to good news changes, also there is a significant and negative relationship between Stock Return Volatility and the speed of price adjustment to bad news changes. Discussion and According to the results, we find that the speed of price adjustment to bad news isn’t faster than to good news in the Tehran Stock Exchange (TSE). Further, the speed of price adjustment to news is not significantly affected by the Earning quality, and does not further accelerate with the changes of earning quality; however, the relationship between them is positive. The results show that earnings quality and its changes cannot lead to changes in reaction speed for investors; in other words, changes in earnings quality is not understood by the Iranian capital market investors.

Financial statements comprise the main part of financial reporting process (Accounting Standard Committee, 1389/2009). Financial reporting goals and accounting foundations require information of financial reporting which has some specific properties (Research Center of Accounting and Auditing, 1385/2005). Family firm defined as a kind of ownership structure is managed and controlled by one of the family members (Chen et al., 2008). Although family firms and family members’ significant ownership in these films are in vogue, there is a little information about such firms and their reporting (Watts, 2003). As mentioned above, various aspects of family firms’ financial reporting can be useful in stakeholders’ decision making. Research Hypotheses: This research consists of two main hypotheses and four sub hypotheses. The first main hypothesis: there is a significant difference between conservatism of financial reporting in family firms using non-family CEO and conservatism of financial reporting in non-family firms. Sub-hypotheses of the first main hypothesis: 1. There is a significant difference between discretionary accruals (non-operational) of family firms using non-family CEO and non-family firms. 2: There is a significant difference between the difference of cash dividend skewness and cash flows of family firms using non-family CEO and non-family firms. Second main hypothesis: there is a significant difference between conservatism of financial reporting in family firms using family CEO and conservatism of financial reporting in non-family firms. Sub-hypotheses of the second main hypothesis: 1. There is a significant difference between discretionary accruals (non-operational) of family firms using family CEO and non-family firms. 2: There is a significant difference between the difference of cash dividend skewness and cash flows of family firms using family CEO and non-family firms. Data research is collected from listed companies of Tehran stock exchange during the period of 1379-1390. Conservatism is a variable of this research and is explored in family and non-family firms. T-test is used to test research hypotheses. The results of the First sub-hypothesis show that the mean difference P-value is 0.357. So there is no significant difference between discretionary accruals (non operational) of family firms using non-family CEO and non-family firms; hence the first sub-hypothesis is not accepted. In exploring the second sub-hypothesis the mean difference P-Value of cash dividend skewness and cash flows equals 0.201; hence there is no significant difference and the second sub-hypothesis is not accepted either. The results of the third sub-hypothesis show that the mean difference P-value equals 0.021 and thereupon there is a significant difference between discretionary accruals of family firms using family CEO and non-family firms wherefore the third sub-hypothesis is accepted. Discussion and According to this research results suggest that family firms owners’ employ family CEO to improve financial reporting quality by utilizing more conservatism.

The impact of risk factors on stock returns is an issue in market- based accounting research. Most of the debate is centered on their incremental ability to predict future earnings. The focus of the recent studies in capital market has also been on the factors effective in the decline of investment risk and their effects on the stock returns. One such study is the three factors model by Fama and French (1993), which shows the effect of risk factors in explaining stock return changes better. The present study aims at examining the relationship between size factor, value factor and market risk premium in order to investigate whether they are complementary or substitution in explaining the time-series variation in portfolio returns. In other words, do these factors proxy for the same risk and contain the same information? Hypotheses: This study examines three factors of Fama & French model, in order to investigate its usefulness in explaining the component of the time-series variation of listed companies in Tehran stock exchange. The primary goal is investigating the relationship between size factor, value factor and market risk premium. Thus research hypotheses are developed as follows: H1. Size factor, value factor and market risk premium explain the changes of portfolios excess returns. H2. Value factor and market risk premium are complementary or substitution in explaining of changes in the excess returns of portfolio. H3. Size factor and market risk premium are complementary or substitution in explaining of changes in the excess returns of portfolio. H4. Size factor and value factor are complementary or substitution in explaining of changes in the excess returns of portfolio. The sample companies in the present study consists of 80 listed companies in Tehran Stock Exchange during the period of 2003-2010. The data required for the research is gathered through Tadbir Pardaz software. Market risk premium factor is the excess return on the market portfolio. Size factor is defined as the monthly difference between average return on small size portfolios and the average return on big size portfolios. Value factors is defined as the monthly difference between average return on the high B/M portfolios and the average return on the low B/M portfolios. We use Wald test to evaluate the joint significance of the intercepts and Seemingly Unrelated Regression method (SUR) for the joint significance of the coefficients. If the coefficients of a tested risk factor are jointly significant, then this variable is a useful factor in explaining portfolio returns and vice versa. The first hypothesis was supported. Size factor, value factor and market risk premium are significant in explaining the variation of size & B/M portfolio returns and incrementally important in explaining the time-series variation of portfolio returns. The second hypothesis shows the sum of the market risk premium and value factor explaining the time-series variation of four (1, 2, 5, 6) individuals portfolios while the value factor explaining the time-series variation of four (1, 2, 5, 6) individual portfolios. The third hypothesis shows the sum of the market premium and size factor explaining the time-series variation of five (2, 3, 4, 5, 6) individual portfolios while the value factor explains the time-series variation of five (2, 3, 4, 5, 6) individual portfolios. The fourth hypothesis shows the size factor and value factor explaining the time-series variation of six (1, 2, 3, 4, 5, 6) individual portfolios while the value factor explaining the time-series variation of four (1, 2, 5, 6) individual portfolios and size factor explaining the time-series variation of five (2, 3, 4, 5, 6) individual portfolios. Asset pricing tests show that size factor, value factor and market risk premium explain the time series variation in the excess returns of similar sets of portfolio. Results indicated that risk factors are incrementally important in explaining the time series variation of portfolio returns. Findings show that market risk premium factor and value factor explain the variation in similar set of portfolios and contain similar information and can be viewed as substitutes for each other. Although in explaining portfolio returns, they are complementary sources of information for investors, market risk premium factor and value factor interpreted as risk factors are substitutes rather than complements. Market risk premium and size factor can be viewed as substitutes for each other. An asset pricing implication of the results is that these factors can be used interchangeably in asset pricing tests, because these two risk factors explain the variation in similar set of portfolios and contain similar information content. The size factor and value factor explain the variation in non-similar set of portfolios and they contain non-similar information, so they can be viewed as complementary for each other. This study indicates that the users in their prediction can only consider the value factor and size factor, while market premium factor does not provide more information for them. This paper employs the Fama & French (1993) model as the benchmark asset pricing model in the Iran stock market. Hence, testing the robustness of our results using alternative model such as the Cahart (1997) model is another possible avenue for future research.

Much of the literature regarding capital structure indicates that not only conflict between manager and owner but also external group impact on funding decisions. It emphasizes that a firm and its competitors are under influence of the method of funding of a firm. Existing literature provides a number of basic approaches for linking market limitations and funding decisions. A large part of empirical literature such as Bolton & Scharfstein (1990), Chevalier & Scharfstein (1996) and Dasgupta & Titman (1998) argue that the impact of financial leverage on performance is related to the degree of competition in capital market. Subsequently, this research is organized to dealing with the issue of whether or not the competition in product market can impact the relationship between financial leverage and performance of the companies listed on Tehran Stock Exchange. In other words, the current research intends to answer if the extent of competition in product market can make any difference on the extent of correlation between financial leverage and performance. Questions and hypotheses: The main question is “Does the degree of competition in product market influence the intensity of financial-leverage impact on performance? Thus the following hypotheses have been developed:Financial leverage has a U-form impact on performance The completion level has a positive impact on performance With respect to the change in competition extent, the impact of financial leverage on performance is made better or worse.

Using Herfindahl-Hirschman’s index, the level of competition has been calculated. Then, considering the level of competition the impact of capital structure on performance, utilizing mix data regression has been examined. Using data of 133 companies during a 5 years period (1385-1389) this research has benefited from time series and also deals with cross sectional data. In order to incorporate time series and cross sectional data, a combination of data should be used. Conclusion and

The results indicate that the financial leverage has a u-shape impact on performance. The level of competition has a meaningful impact on performance. Due to the degree of financial leverage, this impact has a direct correlation with the competition. Also this research shed light on this point that “the impact of financial leverage on performance” is also under the influence of level of competition. This research verifies a direct correlation between level of financial leverage and the level of competition. Also the leverage firms in competitive market show a better performance than a focused (centralized) market.

Bushman and Smith (2001) point out that a fundamental objective of governance research in accounting is to provide evidence on the extent to which information provided by financial accounting systems mitigate agency problems due to the separation of managers and investors. In the presence of proprietary and political costs, firms may opt to protect their competitive advantages by exercising control over what information is voluntarily disclosed. However, empirical evidence in the literature mainly centers on the quantity aspect of disclosure such as the frequency and horizons of forecasts (Ali et al., 2010), number of segments to be reported (Harris, 1998; Botosan and Stanford, 2005) and the pervasiveness of forecasting in the industry (Li, 2010). As far as accounting quality is concerned, prior studies have focused on the choice of income-deflating accounting policies (Hagerman and Zmijewski, 1979) and forecast accuracy (Ali et al., 2010; Li, 2010). Cheng et al. (2013) suggest that firms from concentrated are associated with higher disclosure costs and are more likely to offer financial information of lower quality to avoid the attention of rivals and sanctions from the public. On the other hand, some of the researchers (Gal-Or, 1985; Gertner et al., 1988) believe that increasing competition in the market is reduced for financial information quality. Following prior research in accounting, accruals quality and disclosure quality were employed as a proxy for accounting information quality. Consequently, the following question was raised: “Is there a significant relationship between product market competition and accounting information quality?” Hence, the main objective of this study is to investigate product market competition on the accounting information quality for the listed firms in Tehran Stock Exchange (TSE). Research Hypotheses: Based on the theoretical literature and the conducted studies, research hypotheses were developed as follows: First main hypothesis: Product market competition affects accounting information quality. The minor hypotheses are: H1: Herfindahl-Hirschman index affects accruals quality. H2: Herfindahl-Hirschman index affects disclosure quality. H3: Lerner index affects accruals quality. H4: Lerner index affects disclosure quality. H5: Modified Lerner index affects accruals quality. H6: Modified Lerner index affects disclosure quality. Second main hypothesis: There are significant differences between accounting information quality of firms operating in different industries. The minor hypotheses are: H1: There are significant differences between accruals quality of firms operating in different industries. H2: There are significant differences between disclosures quality of firms operating in different industries. Third main hypothesis: There are significant differences between product market competitions of firms operating in different industries. The minor hypotheses are: H1: There are significant differences between Herfindahl-Hirschman indexes of firms operating in different industries. H2: There are significant differences between Lerner indexes of firms operating in different industries. H3: There are significant differences between modified Lerner indexes of firms operating in different industries. The research methodology is a quantitative research that adopts the scientific method and empirical evidence, based on hypotheses and ex-post research designs. This type of research is utilized when criteria data quantitative are used. In this research, data of 73 companies are analyzed for the period of 2004-2013. The related data was collected through observation of Iranian database of the Tehran Stock Exchange (Tadbir Pardaz), annual data files and accompanying notes as found on www.rdis.com. For statistical analysis and to test hypotheses, descriptive statistics (i.e., mean, maximum, minimum and standard deviation) and inferential statistics (i.e., unit root test, enter multiple linear regression and analysis of variance) are used. Collected data was calculated via the Excel software and was analyzed using Eviews-7 and also SPSS-19. Herfindahl-Hirschman, Lerner, and Modified Lerner indexes were employed as a proxy for the product market competition. Additional accruals quality as it is introduced by Dechow and Dichev (2002) model and disclosure quality index was used as a proxy for accounting information quality. The results of this research show that at a confidence level of 95%, there is a significant positive relationship between criteria of the product market competition and accruals quality (earnings quality). Also, the result suggested that there is a significant positive relationship between the criteria of product market competition and the disclosure quality. Furthermore, based on the analysis of variance, the type of the industry is an effective factor influencing accounting information quality and product market competition.Discussion and Product market competition is an important determinant of corporate decisions, and in particular on decisions about a firm's disclosure strategy. The goal of this research was to study the effects of product market competition on the accounting information quality of listed companies in the TSE. This study would enhance our understanding of how firms make their financial disclosure decisions when facing various degrees of the product market competition. Furthermore, the results might be able to resolve the seemingly conflicting predictions from prior analytical models and will provide some implications for regulatory agencie's future policy setting. One important suggestion is that, when there is a fierce competition both at the firm and at industry level, more disclosure should be attempted. In general considering the potential strategic choice of the firms in voluntary disclosure, the level of a mandatory disclosure can be tuned more to the less competitive industry where investors are less likely to receive timely financial reporting of high quality.

As an important course of corporate value creation, investment is deeply subject to information asymmetry and agency problems. What’s commonly believed is that information asymmetry adds to market friction and exerts influence on the cost of external financing, easily leading to insufficient investment for companies under liquidity constraint. On the one hand, listed companies are currently struggling against, due to agency problems, widespread over investment and serious abusive use of free cash flow and on the other hand, obvious financing constraints and severe shortage in investment attributable to information asymmetry. Both over investment and insufficient investment belong to inefficient investment behaviors which will cause tremendous losses to investors and waste of social resources (Xu et al, 2013). Also known as the cautious principle or the prudence principle, conservatism represents a prudent reaction to future uncertainties, serving as one of the most critical principles employed both by international accounting standards and China’s accounting standards, as well as a significant feature and practice of financial statements. Stemming from contract needs, accounting conservatism is clearly affected by institutional factors and managers’ motives (Watts, 2003). We believe the functions of accounting conservatism, market signaling and internal government, exert varying effects, according to different environment and conditions, on investment decision-making. When internal capital proves insufficient for current needs of investment and a firm is in need of external financing, the role of accounting conservatism as a market signaler dominates. However, accounting conservatism predominantly plays an internal governance role when internal capital is enough for investment, rooting out the need for external funding. Through internal governance, conservatism suppresses over investment and reduces agency cost, which ultimately shrinks firm investment. Research Hypothesis 1.When a company needs external financing because its internal capital cannot meet the need of investment, conservatism functions to advance investment by removing information asymmetry and when external financing is unnecessary with thanks to sufficient internal capital, conservatism works to suppress the level of investment through reducing agency cost. 2. The promoting or suppressing effect of conservatism on investment weakens as agency and information problems become worse. Specifically, with other conditions fixed, enterprises whose ultimate controller is local governments or individuals react less obviously to the promoting or suppressing effect of conservatism on investment compared with other enterprises. The data related to the companies listed in Tehran Stock Exchange for the period of 1384 to 1390 were extracted and the combination regression model was used to test the hypotheses. 1384-1390 data of all companies listed at Tehran Stock Exchange before 1384 is our research samples. Samples have undergone the following treatment in order to find out the influence of abnormal data and ensure company homogeneity and data effectiveness. (1) Listed financial companies are removed (2) Companies with absent audit report or with “reserved opinion”, “reservation with explanatory notes” or “disclaimer of opinion” are removed (3) Some special abnormal samples are also removed, such as listed companies with negative or close to zero expenditure on investment and those with negative net assets (4) Companies with incomplete seven-year data are also removed. The remaining are 120 companies with 840 sample observation values. The results show that there is a significant relationship between accounting conservatism and investment efficiency in both larger and smaller than the net worth of internal capital but, relationship between accounting conservatism and investment efficiency with respect to the level of institutional ownership and managerial ownership has not been confirmed. Discussion and With the 840 samples of the 120 companies listed at Tehran Stock Exchange from 1384 to 1390 as its object, this paper studied the relationship between investment and accounting conservatism. We have argued that the influence of conservatism on investment depends on whether external funds are needed. When investment exceeds the net worth of internal capital and external financing is needed, there is a positive correlation between investment and conservatism, indicating the promoting effect of conservatism on investment; but in this research, we can observe the negative correlation between investment and conservatism because of low level of specialty knowledge in our managers. When investment is smaller than the net worth of internal capital and no external funds are needed, however, there emerges a negative correlation between investment and conservatism, indicating the suppressing effect of conservatism on investment. This conclusion is true for the analysis of both total samples and individual samples. Moreover, we’ve found that the degree of seriousness of information and agency problems faced by a company, to some extent, affect the relationship between investment and conservatism and such relationship is weakened when the ultimate ownership is either institutional or managerial. When the ultimate ownership is an institutional, there are more information problems resulting from multiple-agency and lack of strict restrictions and the inadequate supervision from major shareholders over the management adds to the risk of over investment. When the ultimate ownership is managerial, there emerge the problems of lack of restrict and consummate governance mechanism and strong personal pursuit of interest, leading to the implementation of radical accounting policies and ultimately more information and agency problems. Therefore, companies of both kinds face serious agency and information problems, greatly weakening the advancing effect of conservatism on investment as when external capital is needed and the suppressing effect of conservatism on investment as when external is not needed.