Mediator Role of Government Ownership on Relationship between Real Earnings Management and Future Performance

According to agency theory, state-owned firms have severe agency problems and conflicting objectives. The aim of this paper is to explain the effect of government ownership on the relationship between real earnings management and future performance of companies listed in TSE. This explanation made using financial information of 1035 firm-years and the panel data method in multivariate regression model. The findings of this study show that the government ownership has significant negative effect on the real earnings management and the real earnings management has significant positive effect on the future firms’ performance. Also, the effect of the government ownership variable on the relationship between real earnings management and future firms’ performance was studied. The findings show, that government ownership has significant positive effect on the relationship between real earnings management and future performance with proxy of future operating cash flows. Also, government ownership has no significant effect on the relationship between real earnings management and future performance with proxy return on equity of firms. State-owned firms tend to follow political goals and rarely follow maximizing profit. Government involvement in these firms usually leads to their inefficiency. However, government ownership and affiliation will result in access to information rents and other economic advantages for firms.