Ownership type, high valuation, and discretionary accruals

The quality of financial reports and reported profits is very important for investors, legislators, researchers, etc. On the other hand, company managers use a variety of profit management methods to increase the stock price and maintain a high stock value. In general, some managers have enough incentives for a high valuation of the company's shares. In this way, one of the methods that can be applied to prevent the decrease in stock prices is the use of discretionary accruals. In this regard, agency costs are considered one of the determining factors of accruals in companies, and the ownership structure affects the levels of agency costs, also. Based on this, in current research, the effect of the ownership structure on the magnitude of discretionary accruals in companies with high valuations has been investigated. For this purpose, the data of 160 companies listed on the Tehran Stock Exchange during the years 2010 to 2019 have been collected. The research results show that there is a direct relationship between the high valuation of the company and the magnitude of discretionary accruals. Also, the results show that the magnitude of discretionary accruals increases in the initial periods of high valuation and decreases in the following periods. In addition, managers of state-owned companies do not have the necessary motivation to use discretionary accruals in line with the company's high valuation. In short, the results of this research help to understand the effect of the ownership structure on the reporting behavior of managers in the Iranian capital market.