Identifying Effect of Independence of the Board of Directors on Earnings Quality among the Companies Listed in Tehran Stock Exchange

Independence of the board of directors is one important mechanism that effectively reduces agency problems according to agency theory. In fact, independent board members may have proper governance of financial reporting process. As a result, the board of directors with more independent members is more willing to increase governance, which contributes to increased quality of earnings. The present study aimed to examine whether independence of board of director affects earnings quality among the companies listed in Tehran Stock Exchange or not? This was a quasi-experimental study with post-test design in which 272 companies listed in Tehran Stock Exchange were investigated from 2008 to 2014. Multivariate regression model and panel data were used to test the proposed hypotheses.
The findings indicated that independence of the board of directors has a positive effect on earnings quality. In fact, corporate mechanisms such as board independence enhance the quality of earnings in a company with informational transparency. Moreover, the results showed the direct relationship of cash flow and financial leverage with earnings quality. There was also a significant and inverse relationship between corporate size and earnings quality.