The Effective Motivations OnEarning...

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International Research Journal of Applied and Basic Sciences © 2013 Available online at www.irjabs.com ISSN 2251-838X / Vol, 5 (6): 730-741 Science Explorer Publications The Effective Motivations OnEarning Management YadollahTariverdi 1 , Amir Reza Keighobadi 2 ,RohollahTavasol 3 1.Assistant Professor, Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran. 2. Assistant Professor, Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University, Tehran,Iran. 3. Master of Arts (Accounting), Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran. Corresponding Author: YadollahTariverdi ABSTRACT: Users of financial statements and other accounting reports, Potential investors, especially if associated with the procedure and how to manipulate profits by managers earn more, achieve more informed economic decisions. In this paper, according to earnings management literature, six factors were identified as the most common incentives that affect the earnings management. Taking into account the economic, social and cultural factors in Iran, these comments on Tehran Stock exchange, between 2004 and 2010 were analyzed. The results eventually show that the three factors of ownership structure, company growth and Firm size have a positive and significant relationship with earnings management whereas the financial leverage, the main supply of stocks and bonuses of directors have not any significant relationship with earnings management. INTRODUCTION After a rash of accounting scandals such as the cases involving Enron and WorldCom in the United States, the truthfulnessof corporate accounting numbers has become a controversial issue. The issue whether corporate financial statements canobjectively reflect the underlying reality of corporate transactions has attracted much attention from accounting scholars. (Okamoto,٢٠١١) The present global recession and the financial scams have raised the significance of how accounting professionals manage earnings for achieving specific objectives in different perspectives. Thisnecessitate to learn and explore what, why and how of earnings management. Earnings refer to the bottom line item of the income statement of a company presenting how the company is adding value, the financial benefit, to the wealth of the stockholders. It serves as a barometer to identify, analyze, evaluate and predict the future potential of the company to generate cash flows for the stakeholders of the corporations, which ultimately helps in determining the attractiveness of the stock of that corporation for the current and prospective investors. It ultimately leads to form a basis to develop and implement investment strategies in the stock markets. Knowing the significance of the impact of this primary indicator on stock prices, organizations since long have been using various strategies and techniques, legal or illegal, to alter the profits in a way to attain certain outcomes to achieve specific objectives. These strategies are called as earnings management. These techniques are adopted to have a smooth income trend over long run rather than having exceptionally good or bad earnings in various years. Though various techniques are used for it yet the main objective behind these techniques is to achieve some already set targets i.e. the number game. This situation has alerted the investors and analysts in the stock markets while analyzing and exploring the numbers of corporations to take their investment decisions. Since the manipulated numbers, if so, could be highly disastrous for their survival in the capital markets. Investors tend to valuate businesses on the basis of the reported earnings which specify the extent of value addition a company may provide based on the financial information developed and prepared as per financial reporting standards. The increasing trends of earnings suggest the more propensity of value addition in future as against the decreasing trends in earnings management that the decline in value in the future. Therefore the management of the corporate organizations remains cautious while disclosing earnings in financial statements knowing that the earnings indicator will eventually reflect and determines the probable

Transcript of The Effective Motivations OnEarning...

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International Research Journal of Applied and Basic Sciences © 2013 Available online at www.irjabs.com ISSN 2251-838X / Vol, 5 (6): 730-741 Science Explorer Publications

The Effective Motivations OnEarning Management

YadollahTariverdi1, Amir Reza Keighobadi2,RohollahTavasol3

1.Assistant Professor, Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University,

Tehran, Iran. 2. Assistant Professor, Department of Economics and Accounting, Central Tehran Branch, Islamic Azad University,

Tehran,Iran. 3. Master of Arts (Accounting), Department of Economics and Accounting, Central Tehran Branch, Islamic Azad

University, Tehran, Iran.

Corresponding Author: YadollahTariverdi ABSTRACT: Users of financial statements and other accounting reports, Potential investors, especially if associated with the procedure and how to manipulate profits by managers earn more, achieve more informed economic decisions. In this paper, according to earnings management literature, six factors were identified as the most common incentives that affect the earnings management. Taking into account the economic, social and cultural factors in Iran, these comments on Tehran Stock exchange, between 2004 and 2010 were analyzed. The results eventually show that the three factors of ownership structure, company growth and Firm size have a positive and significant relationship with earnings management whereas the financial leverage, the main supply of stocks and bonuses of directors have not any significant relationship with earnings management.

INTRODUCTION

After a rash of accounting scandals such as the cases involving Enron and WorldCom in the United States, the truthfulnessof corporate accounting numbers has become a controversial issue. The issue whether corporate financial statements canobjectively reflect the underlying reality of corporate transactions has attracted much attention from accounting scholars. (Okamoto,٢٠١١) The present global recession and the financial scams have raised the significance of how accounting professionals manage earnings for achieving specific objectives in different perspectives. Thisnecessitate to learn and explore what, why and how of earnings management. Earnings refer to the bottom line item of the income statement of a company presenting how the company is adding value, the financial benefit, to the wealth of the stockholders. It serves as a barometer to identify, analyze, evaluate and predict the future potential of the company to generate cash flows for the stakeholders of the corporations, which ultimately helps in determining the attractiveness of the stock of that corporation for the current and prospective investors. It ultimately leads to form a basis to develop and implement investment strategies in the stock markets. Knowing the significance of the impact of this primary indicator on stock prices, organizations since long have been using various strategies and techniques, legal or illegal, to alter the profits in a way to attain certain outcomes to achieve specific objectives. These strategies are called as earnings management. These techniques are adopted to have a smooth income trend over long run rather than having exceptionally good or bad earnings in various years. Though various techniques are used for it yet the main objective behind these techniques is to achieve some already set targets i.e. the number game. This situation has alerted the investors and analysts in the stock markets while analyzing and exploring the numbers of corporations to take their investment decisions. Since the manipulated numbers, if so, could be highly disastrous for their survival in the capital markets. Investors tend to valuate businesses on the basis of the reported earnings which specify the extent of value addition a company may provide based on the financial information developed and prepared as per financial reporting standards. The increasing trends of earnings suggest the more propensity of value addition in future as against the decreasing trends in earnings management that the decline in value in the future. Therefore the management of the corporate organizations remains cautious while disclosing earnings in financial statements knowing that the earnings indicator will eventually reflect and determines the probable

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earnings growth of the company and thus they try to minimize the signals of uncertainty and manages the results in a way to portray the picture as per the needs. Earnings management comes up and exists owing to the different incentives it has for themanagement. These incentives include meeting the internal targets or benchmarks, attaining goal oriented compensation, meeting external expectations like those of employees, customers, suppliers,investors and market analysts. The motive of earnings management may be to get favorable results in IPOs, Mergers and Acquisitions, debt, contractual obligations or competition. The management of corporate organizations generally has alternate choices regarding operating and accounting decisions and they have to choose from among the available alternatives.Anjum et al, ٢٠١٢)Thisstudyevaluated theeffectiveness ofstimulationearnings managementoflistedcompaniesinTehran stockexchange. Inthisregard,the six elementsofmanagementincentivesto manipulateearnings, which is consistentwith thelogical reasoningofenvironmentalconditionsthatwill bestudiedinclude thefinancial structure, ownership structure, supply stock, bonusesofdirectors, the company's growthand sizecompany. Background and hypothesis development Financial structure Firms with debt covenants can face dire consequences if they fail to achieve a certainlevel of performance. To avoid violating debt-covenant constraints, managers likely use thediscretion afforded in accounting standards when their firms near such constraints. DeFondandJiambalvo (1994) indicate that managers use accounting discretion to avoid debtcovenantconstraints. Similarly, Sweeney (1994) argues that managers of firms in technicaldefault make income-increasing accounting changes in periods before the violation. Thedebt/equity ratio (or debt ratio) has been suggested as a proxy for debt-covenant constraints(Watts & Zimmerman, 1986).Duke and Hunt (1990) suggest that debt ratio is positivelyrelated to the existence and tightness of retained-earnings restrictions .Therefore, predictthat, compared to firms with lower debt ratios, firms with higher debt ratios will be morelikely to reverse previously recognized impairment losses to avoid earnings declines.(Okamoto,2011). Accordingly, we propose the first hypothesis: H1.There is a relationshipbetweenfinancialleverageandearnings management. Ownership structure Tighter monitoring, more sophisticated ownership, and boardmembership are, in turn, expected to be associated with less earnings managementpriorliterature also documents that differences in firms’ ownership concentration can affect reportingincentives and earnings management. Because in a more concentrated ownership structure, largeowners typically sit on the board and are often directly involved in firm management( P. Katz, 2009),communicating firm performance via financial statements (and thus earnings management)becomes less important (Leuz, 2006). Ownership structure of a firm can be categorized into two groups: proportion of shares owned by insiders and outsiders; proportion of shares owned by institutional versus individual shareholders.For the insider and outsider shareholders category, Dahliwal, Salamon, and Smith (1982) found that managerial ownership is negatively associated with earnings manipulation. Managerial ownership is a variable that might reduce the agency costs as the motivations of managers are aligned closely to the objectives of other shareholders. Institutional investors are large investors, other than natural person, who exercise discretion over investment of others. Organizations which are considered as institutional investors are insurance companies (life and non-life), pension funds, investment trusts (including unit trusts), financial institutions (including banks, finance companies, building societies and credit cooperatives), investment companies, and other nominee companies associated with the above categories of institutions (Lang and McNichols,1997). Institutional investors have the opportunity, resources and ability to monitor, discipline and influence a manager’s decision in the firm (Monks and Minow, 1995). McConnell and Servaes (1990) support the above statement and report a significant relationship between the value of a firm and the percentage of share owned by institutional shareholders. Richard, Michael and Jeong-Bon Kim (2002), Pin SengKoh. (2005) and BitaMashayekhi (2008) argued that institutional share ownership may have implications for earnings management as they are able to influence the company’s management. The results indicate that institutions with large shareholdings play an active role in monitoring managerial opportunism in managing the reported earnings. This is because when the institutions invest in the long term period, they are more concerned about the underlying profitability of the companies and be wary of the use of discretional accruals to manage the earnings. (Wong et al, 2009). H2.There is a relationshipbetweenownership structureandearnings management.

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Initial public offering Studies identifying earnings management usuallymake the assumption that intent is present in the circumstances where the tests are made.In research testing for earnings management in IPO firms it is assumed that it is capital marketmotivations that drive the firms to earnings management. The aim is to maximize the company’sequity value and through this increase the owners wealth and reduce the company’sfinancing costs. ( SPOHR, 2004). This belief is fueled by the notion that earnings management requires“opportunity” and “motive”, both of which are thought to be especially strong around the IPO. The motive for earnings management isthought to exist for at least two reasons that are unique to the IPO setting. First, managerstypically have a large fraction of their wealth concentrated in the firm’s equity prior to the initialoffering, and the IPO provides managers the ability to diversify their concentrated holdings inthe firm. Second, once the company is publicly traded, managers will be evaluated on the basisof the firm’s stock price. (Armstrong et al, 2009). Prior research has found that IPO firms manage earnings that affect the mispricing of IPOs. For example, Darrough&Rangan (2005), Teoh&Wong (2002), Zhou, Zhang & Li (2005), Armstrong et al, 2009, Fan (2007) and CHEN &LIU(2010). H3.There is a relationship between IPOand earnings management. Bonuses General compensationpolicies determine bonuses based on a specified percentage of reported after-tax net income(Healy, Kang and Palepu, 1987; Healy and Palepu, 1990). In accordance with the observationthat executives have access to private information on their firms’ net income prior to earningsmanagement, Healy (1985) assumed that executives would manage net income figures so as tomaximize their bonuses. Subsequent studies have shown that earnings managers tend to avoidreporting net loss or earnings decreases in consideration of their bonuses. Earnings manipulatorsshare the same motivation, but also show a tendency to present information showing that theirfirms maintain or surpass previous earnings performance.( Chen, 2004). Accordingly, the fourth alternativehypothesis is stated as H4.There is a relationship between Bonuses and earnings management. Growth The accounting literature has extensively examined the impact of corporategrowth opportunities on managerial behavior and decision making (Watts andZimmerman, 1986). Firms with high growth opportunities (i.e., lower assets-in-place)are reflected by a higher proportion of future discretionary investment expenditures bymanagers (Myers, 1977), and are thus more difficult to observe and monitor (Wattsand Zimmerman, 1986; Gaver and Gaver, 1993). Managers in high-growth firms aremore likely to have opportunistic behavior (Watts and Zimmerman, 1986; Skinner,1993), which will further aggravate the situation of lower observability in growthfirms. As a result of lower observability of managers’ activities and higher probability for managers’ opportunistic behavior, growth firms will be more risky than their nonhigh growth counterparts (Smith and Watts, 1992). Moreover, controls in high-growthfirms are less likely to be effective (Andersen et al., 1993), given the control systemthat has been installed may keep pace only with the original scale of operations.(CHEN & LIU, 2010). Aweak internal control environment also has the potential to allow “intentionally biasedaccruals through earnings management” (Doyle et al., 2007). Inaddition, Firth, Fung &Rui (2007) point out that fast growing firms may find it easier to engagein earnings management than mature firms since it is difficultto observe the business activities of fast growing firms. Thus,managers of high growth firms are likely to have strong incentives to meet earnings benchmarks.(Sun and Rath, 2009).Therefore, high growthfirms are more likely to demonstrate earnings management characteristics. H5.There is a relationship between growthand earnings management. Firm size Two opposing views exist on the role of firm size in earnings management as discussed below. The larger the firm size, the less earnings management may be feasible. First, the size of a firm is related to its internal control system. Large-sized firms may have more sophisticated internal control systems and have more competent internal auditors as compared to small-sized firms. An effective internal control system contributes to the reliability of financial information disclosed to the public. In addition, corporate governance mitigates the degree of earnings

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management and improves the quality of financial reporting (Warfield, et al., 1995 and Beasley et al., 2000). Therefore, large-sized firms are more likely to design and maintain more sophisticated and effective internal control systems in comparison to small-sized firms, reducing the likelihood of manipulating earnings by management. Second, large-sized firms are usually audited by auditors from big 5 accounting firms that tend to have more experienced auditors who could help prevent earnings misrepresentation. Quality differentiation exists in controlling aggressive and opportunistic earnings management among big international accounting firms, national firms, and local firms (Francis, et al., 1999). Specifically, the firms audited by big 5 tend to report lower levels of discretionary accruals even though they have high level of accruals. In addition, firms audited by big 5 also report lower levels of discretionary accruals (Becker et al., 1998; Francis et al., 1999; and Payne and Robb, 2000). Gore et al. (2001) report that non-big 5 auditors allow more earnings management than big 5 auditors. Lennox (1999) also finds that the audit reports issued by large auditors are more informative, exhibiting that auditor size is positively related to audit accuracy. Heninger (2001) documents a positive association between risk of audit litigation and abnormal accruals. These studies demonstrate that large-sized firms tend to receive better audit services from established auditing firms due to larger operating budgets. Third, large-sized firms take into account the reputation costs when engaging in earnings management. These firms may have better appreciation of market environment, better control over their operations and better understanding of their businesses relative to small-sized firms. Large-sized firms may have established their credibility in business community and social responsibility as well, including the credibility of financial information because they are more able to utilize best expertise and modern information technology in generating reliable and timely information compared to small-sized firms. Hence, the cost of engaging in earnings management will be higher for large-sized firms than small-sized firms. Therefore, their concern about reputations may prevent large-sized firms from manipulating earnings. Finally, large-sized firms may be less likely to manage earnings relative to smaller counterparts because they are followed by more financial analysts. In contrast, an opposing view suggests that large-sized firms are more likely to manage earnings than small-sized firms. First, as Barton and Simko (2002) indicate, large-sized firms face more pressures to meet or beat the analysts' expectations. Myers and Skinner (2000) compile empirical evidence that large-sized firms do not report accurate earnings after studying their earnings growth for at least 14 quarters. Rangan (1998) also notes that the firms in his study manipulating current accruals to overstate earnings in the year before seasoned equity offerings are older and larger. Second, large-sized firms have greater bargaining power with auditors. The larger the firm size, the more bargaining power they have in negotiations with auditors. Nelson et al. (2002) document that auditors are more likely to waive earnings management attempts by large clients. Third, large-sized firms have more room to maneuver given wide range of accounting treatments available. They may have greater current assets, i.e. better ability, to do earnings management than small-sized firms. Fourth, large-sized firms have stronger management power. Even though strong internal control systems do exist, the management may override the internal control system to manipulate earnings to outrun the thresholds. Finally, large-sized firms may manage earnings to decrease political costs. In all, the incentives and abilities to manage earnings may vary among firms of different sizes. (kim et al, 2003). H6.There is a relationship between firm sizeand earnings management. research design and data collection

DATA AND METHODOLOGY In this section we will explain the procedures of sample selection, describe the main model used in this paper and Clarify theoperational definition of the variables used. Sample and Data The sample for this study is included firms listed on the Tehran Stock Exchange. The sample period is from2004–2010. Our principal sources of information areAnnual financial statements, TadbirPardaz software and Stock Exchange sites (www.irbourse.com and www.rdis.ir).After applying some criteria, the sample size is155 companies for each year. Dependent variable Incentives that affect earnings management.- Financial leverageMost research has been done on the earnings management, Debt to equity ratio or (D / E) is used.

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Ownership StructureFor ownership structure, as well as some western research Beneish (1997) and Darrough and others (1998), From the total number of shares traded to shares issued will be used. . If the number of shares traded in a company in an accounting period is less From 5% of the company's capital, As a long term investment horizon, and the dummy variable 0 is used.And vice versa if the number of shares traded is more From 5%, The investment horizon is short term considered, and the dummy variable 1 is used. Initial public offering In relation to The major trading stocks, from dummy variable 0 and 1 will be used. If the company, has major stock transaction in the year, the variable 1(Offer and sell the shares at a level higher than 5%)And conversely, the dummy variable 0 will be used. Bonuses In relation to bonuses, the total amount paid as bonuses to board members, will be used. Company Growth Growth of the firm, the total sales at time t, divided by total sales in t-1 is calculated. Company Size In this study, to measure the size of the company, the market value of shares at year-end is used. The total market value of stocksIs equal to multiply the number of shares and the market value of the stock at the end of the year. Independent variables Earnings-management measure Consistent with previous research, discretionary accruals are used to identify earnings management. In this research for measuring discretionary accrual we use kasznik (1999) model. ACCRit = α0 + α1 (ΔREVit - ΔRECit) + α2 PPEit + α3ΔCFOit + eit Where, ACCR is the total accrual, ΔREV is the change in operating revenues, ΔREC is the change in netreceivables, PPE is gross property, plant and equipment, and ΔCFO is cash flows from operating activities. Allvariables are scaled by prior year total assets. Total accrual (ACCR) is defined in this study as the difference between net income before extraordinary items(NI) and cash flow from operating activities (CFO): ACCR = NI – CFO Nondiscretionary accruals (NDAC) evaluate from the above model and discretionary accruals (DAC) are definedas the residuals. I focus on discretionary accruals as the source of earnings management.I estimate discretionary accruals as total accruals (defined as thedifference between earnings from continuing operations and cash flow from operations) minus nondiscretionaryaccruals.'" To estimate nondiscretionary accruals, 1 extendthe models used by Jones (1991) and Dechow, Sloan, and Sweeney(1995). I include the change in operating cash flows as an explanatory variable because Dechow(1994) finds that it is negatively correlated with total accruals. I also relax Jones's assumption thai revenues are nondiscretionary;FollowingDechow, Sloan, and Sweeney (1995|, I adjustthe sales revenue variable for the change in accounts receivable.

METHODOLOGY To test our hypotheses, we use Multiple regression models (forManagerial motivations and earnings management).The statistical model used in this study is multiple regression. With regard to the present study, the effect of financial leverage, ownership structure, supply stock, bonuses of directors, company growth and firm size on earnings management is analyzed, the statistical model can be estimated as follows.

iti SizeGrowthBounsIPOOWNEDY 6543210 /

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Table 1

Table 2

iti SizeGrowthBounsIPOOWNEDLnY 6543210 /

One of the assumptions of regression tests that show the validity of the regression model is normal residues, Then Using the Kolmogorov - Smirnov test normal distribution of the dependent variables was assessed. As can be seen in Table 2 for EM values were significantly less likely than 0.05. Means the distribution of data for this variable in the years intended is not normal whereas the probability to Ln (EM) higher than 0.05. Means the distribution of the Log variable is normal.

Table 3

Significance level of F is equal to 0.000. Thisamounts is less than 0.05. So in the %95 confidence level there is a significant model.

One-Sample Kolmogorov-Smirnov Test

1084 .0849 .07990 .144 .131 -.144 4.738 .000

N Mean Std. Deviation

Normal Parametersa,b

Absolute Positive Negative

Most Extreme Differences Kolmogorov-Smirnov Z

Asymp.Sig.

(2-tailed)

EM

Test distribution is Normal.a.

Calculated from data.b.

One-Sample Kolmogorov-Smirnov Test

1083 -2.9807 1.20043 .080 .044 -.080 1.215 .105

N Mean Std. Deviation

Normal Parametersa,b

Absolute Positive Negative

Most Extreme Differences Kolmogorov-Smirnov Z

Asymp.Sig.

(2-tailed)

Ln(EM)

Test distribution is Normal.a.

Calculated from data.b.

ANOVAb

49.336 6 8.223 5.732 .000a

1544.847 1077 1.434

1594.183 1083

Regression

Residual

Total

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), Size, D/E, Growth, OWN, IPO, Bounsa.

Dependent Variable: Ln(EM)b.

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Table 4 r2 is equal to 0.03. This means that about %3 of the variability is explained by the independent variables. thedurbin-watson is equal 1.70. Values close to 2 indicates no autocorrelation of the residuals,That Another one of the assumptions of regression is show.

RESULTS Descriptive statistics Tablepresents descriptive statistics for the full sample of 155 company. Mean greater than the median of the data shows that there are large areas, Because mean is affected by this values.In these cases, data distribution is skew to the right.For example, the variable EM (earnings management) distribution is skew to the right.In some cases skew to the left,Variable distribution of D / E (financial leverage) is skew to the left, And if the mean and median values of the variables are closelyDistribution of variables is symmetric. Logarithm of the dependent variable with the skewness and kurtosis respectively -0.82 and 0.2 is very similar to the normal distribution.As can be seen in table 6, %45 variable OWN (Ownership) zero and %77 of the IPO (offer of shares) is zero.

Table 5

Table 6

Statistics

.0849 .0604 .07990 1.723 3.485 .00 .50

-2.9862 -2.8067 1.21326 -.816 .199 -8.90 -.69

2.25082 1.89870 8.489689 -5.006 60.389 -90.970 46.315

1.64200 2.47712 1.419830 -.195 -1.755 .000 5.186

.17275 .14443 .352263 1.291 5.723 -.994 2.197

11.39702 11.34044 .642598 .458 .292 9.935 13.605

EM

Ln(EM)

D/E

Bouns

Growth

Size

Mean Median Std. DeviationSkewness Kurtosis Minimum Maximum

486 44.8% 837 77.1%

599 55.2% 248 22.9%

0

1

Count %

OWN

Count %

IPO

Model Summaryb

.176a .031 .026 1.19766 1.696

Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Durbin-Watson

Predictors: (Constant), Size, D/E, Growth, OWN, IPO, Bounsa.

Dependent Variable: Ln(EM)b.

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MULTIVARIATE RESULTS

Table 7 reports Multiple regression results for Dependent variable occurrence based on modelkasznik.To test our hypotheses, we use Multipleregression models (forManagerial motivations and earnings management).

Table 7 Test for H1 According to Table 7, the coefficient D / E -0.007, and the statistic t, -1.55 calculated. Significance level, 0.121 which is 0.05level is higher. Therefore, we cannot reject the null hypothesis And with %95 confidence, we accept that there is no significant relationship. In Western countries, have been done a research on the impact of financial leverage on earnings management;Including (Dechowand Skinner, 1994; Klein, 2002; Richardson, 2002; Osman, 2006;Myers and Skinner, 2006, Bohren and Haug, 2006, Bauwhede and Willekens,2006, Sundgren, 2007; Wolfgang et al, 2008, Wong et al, 2009; Mitani, 2010; Naz et al, 2011; Sandra Alves, 2012)They have concluded in their researchWhatever the debt-to-equity ratio increases,Managerial incentives for earnings management would be moreOn the other hand (Chang et al, 2005, Zhang et al, 2007; Lee et al, 2007; Chen, 2009; wang and wei, 2012)Significant negative relationship between discretionary accruals and leverage observed.And stated, The companies that have many loan,May be less able to manage earnings.Because they are carefully controlled by the lenders. Test for H2 According to Table 7 the coefficient OWN 0.254, and the statistic t 3.4 calculated. Significance level, .001 which is 0.05levelis lowered. Therefore,the null hypothesis cannot beacceptedAnd with %95 confidence, we accept that there is a positive significant relationship.SengKoh. (2005); Cornett et al, 2006; Wongsunwai, 2008; Xieet al, 2003; Richard, Michael and Jeong-Bon Kim (2002); Mashayekhi (2008); Farooq and El Jai(٢٠١٢); Greco, 2012, and Sandra Alves, 2012 Significantand negativerelationshipbetween earnings managementandownership structureobserved. On the other hand, Gopalan and Jayaraman (2012) observed that the company is managed by a family with earnings management are more related. Test for H3 According to Table 7, the coefficient IPO 0.132, and the statistic t, 1.47 calculated. Significance level, 0.140 which is 0.05 level is higher. Therefore, we cannot reject the null hypothesis And with %95 confidence, we accept that there is no significant relationship. Researchby; Roosenboom et al., 2003; Darrough, Rangan, 2005, Zhou andZhang , 2005; Fan, 2007, Armstrong et al, 2009; Chenand Liu,2010)shows that Companies, at the time oftheinitialofferingofshares,opportunisticallymanagetheir earnings.

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Test for H4 According to Table 7, the coefficient Bouns -0.029 and the statistic t, -1.06 calculated. Significance level, 0.290 which is 0.05 level is higher. Therefore, we cannot reject the null hypothesis And with %95 confidence, we accept that there is no significant relationship. Research has proven that In the most managers in economic institutions in order to increase their bonuses,Attempt to manage earnings. Test for H5 According to Table 7, the coefficient Growth 0.238 and the statistic t, 2.26 calculated. Significance level, 0.024 which is 0.05 levelis lowered. Therefore,the null hypothesis cannot beacceptedAnd with %95 confidence, we accept that there is a positive significant relationship. In research conducted byWestern scholarsMyers and Skinner 2006,Bohren and Haug2006,Healy, and, Palepu2003,Mitani2010,Anis2010,ChenandLiu2010), thepositive relationshipbetweenfirm growthandearnings managementobserved. Firth and Fung(2007) statedthatThefast-growingcompaniesthanmature companies, can beeasiertomanageearnings.Because theobservation andevaluation ofcommercial activitieswiththe company's rapid growth is difficult. Test for H6 According to Table 7, the coefficient Size 0.135 and the statistic t, 2.17 calculated. Significance level, 0.030 which is 0.05 levelis lowered. Therefore,the null hypothesis cannot beacceptedAnd with %95 confidence, we accept that there is a positive significant relationship.Bohrenand Haug(2006), Sun, and Rath (2009), WONGet al(2009), Chen(2009) Ali shah, Yuan , Zafar(2010)Anis(2010), Mitani(2010) Al-Fayoumi et al (2010) Wang , Sheu, Chung, (2011), wang and wei(2012), a significant negativerelationshipbetween earnings managementandfirm sizewereobserved. ChenandLiu (2010), betweensize of the companyanddiscretionary accruals, a significant positiverelationshipwas observed.

Table 8

Stepwisemethodwas usedto estimatethe appropriate model.In thisway, thesignificantvariableswereenteredintothe model.according to table…, thet-statistic for OWN; is equal3.28 (significant and positive), for Growth; is equal2.25(significant and positive) andforsize of the company, is equal 2.24 (significant and positive)The estimatedmodelis as follows.

SizeGrowthOWNYi 13/023/024/063/4

CONCLUSIONS

In this study, the effect of six independent variables on the dependent variable, was examined. Testing the financial structure, indicating that there is no significant relationship between the ratio of debt to equity and earnings management.

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Aswe know,incountries like Iran, financingbydebt, has its owncharacteristics. For example, in Iran, mostcreditorsarethebanksandcreditinstitutionswhicharestate-ownedoraffiliated to the government.Bankingoperationsandlaws, nointerestwillfollow.Andinterest rates, is determinedby the policyofthe central bank. Moreover, the basis forlending tocompaniesexistforbankcredit, andthecustomerishavingsufficientguarantees.In other words, In Iran,because thecompaniesare notrankedbyauthorizedinstitutions; Granting loanwithsimilarinterest rateandaccording to the typeofIslamic contracts; occurs. In the second hypothesis,observed a significant positive correlation, indicating that Iranian companies that have investors with short term investment horizon; More, they engage in earnings management, so there is a direct relationship between ownership structure and earnings management. The results of the third hypothesis show that between the supply of shares and earnings management, there is no significant relationship. The results of this study, with the main offer of shares, in Iran; compatible. In Iran, the supply the main shares is done through two references, The first reference, are exporter companies shares. In connection with the capital increase, they prefer from through the issuance of preference shares, for existing shareholders, done. In this case, the Shareholders will not change And stock options to certain amount, usually less than the actual value of the stock to the shareholders are present. So in this case, there is no incentive to managers for show good financial position and earnings manipulation in the period before the capital increase The second source for main supply stock enterprises, are investment companies These groups based on predetermined policy and its economic policies, on proper opportunities, have attempted to offer shares in investee companies The most important point is in Iran Other investors, and individuals wishing to invest in companies With previous studies, basic financial statements and other reports of economic institutions, they do not apply to the purchase of shares Because of Iran stock market, the market environment and their perception from the market determines the price of the stock According to results of this study, the hypothesis of the reward managers about the Iranian companies(Listed on the stock exchange) has not been confirmed.Bonusmanagers of the Iranianenterprises, often, according to thereward ofyearsago, is determined.Even, sometimesformanagersofcompaniesthathave beenloss, the reward isin order. Because themanagement ofmost companies, it isthegovernmentorquasi-governmentagencies. About the sixth hypothesis, The resultsindicatea significant positiverelationshipbetweenfirm growthandearningsmanagement.The contracttheoryshows that thehigh-growthfirmsaremore difficultto observeandmonitorAnd so, Managers in high-growth firms are more likely to have opportunistic behavior Thus,high-growthfirmsaremorelikelytoengageinearnings management In addition, controls in high-growthfirms are less likely to be effective (Andersen et al., 1993),And so, Aweak internal control environment also has the potential to allow “intentionally biasedaccruals through earnings management” (Doyle et al., 2007). And the last hypothesis, Theresultsshowa significant positiverelationshipbetweenfirmsizeandearnings management.In contrast, an opposing view suggests that large-sized firms are more likely to manage earnings than small-sized firms. First, as Barton and Simko (2002) indicate, large-sized firms face more pressures to meet or beat the analysts' expectations. Myers and Skinner (2000) compile empirical evidence that large-sized firms do not report accurate earnings after studying their earnings growth for at least 14 quarters. Rangan (1998) also notes that the firms in his study manipulating current accruals to overstate earnings in the year before seasoned equity offerings are older and larger. Second, large-sized firms have greater bargaining power with auditors. The larger the firm size, the more bargaining power they have in negotiations with auditors. Nelson et al. (2002) document that auditors are more likely to waive earnings management attempts by large clients. Third, large-sized firms have more room to maneuver given wide range of accounting treatments available. They may have greater current assets, i.e. better ability, to do earnings management than small-sized firms. Fourth, large-sized firms have stronger management power. Even though strong internal control systems do exist, the management may override the internal control system to manipulate earnings to outrun the thresholds. Finally, large-sized firms may manage earnings to decrease political costs.Kimet al, (2003).

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