Legal Analysis of Earnings Management in Tehran Stock Exchange Listed Companies Using GMM Method

Earnings management is influenced with environmental factors that can be theoretically analyzed by agency theory. From a legal perspective, agency dilemma represented with principal – agent problem. It can be in common ground with accounting. This problem causes to the moral hazard that can be raised in the form of information asymmetry via the relationship between manager and shareholders. Property rights protection is a manner to control the moral hazard. The purpose of this study is to examine the legal variables effect on earnings management in listed companies in Tehran Stock Exchange by utilizing the concepts of institutional economics, property rights institution and principal – agent problem. Therefore, the relationship between property right index and its components with earnings management was examined thorough GMM method using collected data of 94 of the listed companies in Tehran Stock Exchange during 2011-2017. According to the results, protection of property rights is significantly reduce earnings management. Furthermore, reinforcement of rule of law, political stability, corruption control, access to loan, intellectual property rights protection, patent protection and facilating property registration process will control the earnings management.