The Effect of Over-valuation Stock Price on Real Earnings Management in Listed Companies of Tehran Stock Exchange

The concept of overvaluation is the market price of share higher than its intrinsic value. Financial and accounting literature indicates that the managers of overvalued firms use the real earnings management to maintain this position. The aim of this study is to investigate the effect of over-valuation stock prices on real earnings managemen. Target sample consists of 80 companies during 1383-1391. Following Badertscher (2011), proxies of real earnings management are including of abnormal operating cash flows, abnormal production costs and abnormal discretionary expenses. Also, the ratio of the market price to intrinsic value is considered as a proxy of stock over-valuation، Residual income model was used to measure the intrinsic value، Panel data method was applied to examine the effect of over-valuation on real earnings management. Results indicate that the over-valuation has significant effect on abnormal operating cash flows, abnormal discretionary expenses and abnormal production costs as the proxies of real earnings management. In other words, these results can be deduced that firms with higher value of shares are expected tendency to sustain high performance and earnings management.