Ownership Structure, Audit Quality, and Real Profit Management - Recognizing Simultaneous Interactions

The most important feature of joint stock companies is the separation of ownership from management and therefore the role of independent audit mechanisms on the activities of managers, in line with good corporate governance. Net profit is also influential in the decision making of users of financial statements and therefore is a potential activity for managers of profit management practices. The relationship between earnings management and audit quality is also theoretically significant. The present study investigates the simultaneous interactions between ownership structure, audit quality and profit management. In this regard, three types of real, managerial and institutional ownership in the ownership structure, the quality of independent auditing as a supervisory mechanism and real profit management in the form of three separate three-equation systems using three- and two-step least squares methods in It has been studied among 167 companies between 1392-1392. The results show that with increasing the percentage of all three types of ownership, the probability of profit management decreases and the occurrence of profit management leads to a decrease in each of the three types of ownership. Also, audit quality and ownership structures have had a significant positive effect on each other simultaneously and reciprocally. Finally, profit management and audit quality have a simultaneous negative interaction with each other and increasing each leads to reducing the other variable.