Impact of Investor Optimism on Accounting Misconduct: Evidence From fraud and Big-Bath Accounting

Managers may engage in unethical behavior, such as the use of abnormal accruals and fraudulent activities, for personal gain and the prevention of violations of debt contracts. In addition, investors' pressure to increase company earning and value can increase the severity of accounting misconduct, Also, behavioral aspects such as investor optimism and attitudes toward the company are among the factors that can influence the incentives of managers to adopt investment policies and earnings reporting. Therefore, the purpose of this study is to determine the effect of investors' optimism on probability of fraud, abnormal accruals, and Big-Bath Accounting. In this research, the financial information of 141 companies accepted in Tehran Stock Exchange during the period of 2011 to 2020 has been used. The results of this study, using by multivariate linear regression model and panel data method, show that optimism of investors has a positive and significantly in the probability of fraud and abnormal accruals and by the increase of investor optimism, the probability of fraud and abnormal accruals increases. Also, the results showed that investors' optimism reduced the Big-Bath Accounting as one of the aspects of earning management.