Real Earning Management, Corporate Governance and Cash Holding

Decreasing interest conflicts between stockholders and executives is the corporate governance’s role and this is accentuated when managers perceive motivations to deviate from the advantage of stockholders. Corporate governance is likely to diminish profit management while improving the investors’ understanding of cash maintenance. This study aims at recognizing relevance among real profit management and corporate governance. To measure profit management, Recovery models (2006) and Jenni (2010) and for measuring the relevance between cash maintenance and profit management, modified models of Opler (1999) and Phama and Fringe (1998) have been deployed in this study. Percentage of non-obligated members of executive board (executive board independence) has been utilized as the substantial feature of corporate governance. As for testing thehypotheses, multi-variable linear regression model and integrated generalized least squares method were used. Considering the limitations imposed in selection, statistical sampling of the study includes 90 accepted companies in Tehran Stock Exchange that have undergone research between2008 and 2012. The findings indicate that there is a meaningful positive relevance between real profit management and cash maintenance. Investors decrease cash maintenance in companies with high real profit management and compared to businesses with strong corporate governance, weaker ones possess less evaluations of cash maintenance among those which perform profit management in its high levels.