A study on the relationship between Cost leadership strategy, Market Competition, and earnings management in the Tehran Stock Exchange (TSE)

The main objective of present study is to investigate the impact of leadership cost, as one of the trading strategy, and market competition on real earnings management. The statistical society includes all of the listed companies of Tehran stock exchange, in which we select 128 companies during the period from 2010 to 2015 based on filtering process, and we analyze the relationship between variables by generalized least square and panel data. In this study, we use real activities manipulations to measure earnings management. Herfindahl-Hirschman index were employed as a proxy for the industry-level market competition and use the share index (SHARE) to measure firm-level competition. In this study Asset Turnover of Operation (ATO) index were employed as a proxy for cost leadership strategy. The result shows that leadership cost strategy has significant relation with real earnings management. The positive relation among leadership cost strategy and earnings management indicates that the companies with leadership cost strategy has tend to high earnings management. Moreover, the earnings management can intensify by using leadership cost strategy and increasing the level of competition.