An Investigation into the relationship between Value Relevance, Earnings Management and Corporate Governance of listed companies in Tehran Stock Exchange

Elham Khalili, Yaghoub Aghdam Mazraeh

Abstract


 In this study, the relationship between the value relevance, earnings management and corporate governance is discussed, with and without the control variables. The place domain of the research includes companies listed on the Tehran Stock Exchange. The time domain includes the interval 2010-2014. The research is consisted of two independent variables (earnings management and corporate governance (dependent variable (the value (stock price), earnings per share, book value per share, related party transactions, market value of equity) and control variables (financial leverage, size Inc., age, industry, financial year). The role of corporate governance is to reduce divergence (contradiction) of interest between shareholders and managers. An example of deviation from the shareholders' interest management, profit management is seen through accrual accounting. Therefore, corporate governance probably leads to the reduction of earnings management. On the other hand, it reduces the value relevance in the company. The topic of the relation of corporate governance was initially proposed by Olson (1995). He experimentally shows that there is a meaningful relationship across certain characteristics of corporate governance, earnings management benefit and value relevance. (for example, Jian and Wang (2010), Haghighat and Wang (2011) and Sean (2014)). In this study, corporate governance is measured with corporate governance standards, including the property institutional shareholders, the ownership of managers, the board and the percentage of free float shares and it is also used to measure earnings management of related party transactions, stock price and value relevance. Library and field data collected in two ways. According to an investigation on the basis of objective, the method is quantitative and applied and the assumptions are used through multivariate linear regression analysis as the basis for testing hypotheses (MD) and test specification error for symbolic regression. The statistical software Eviews 8 was used for data analysis and data were available for all users in the form of information after processing. Findings suggest that there is a significant and negative correlation between corporate governance mechanisms and profit management in companies, and by reducing the earnings management in the company, value relevance is also reduced.

                                                         


Keywords


corporate governance, earnings management, value relevance.

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