Studying the Relationship between Economic Massive Changes with Earnings Management of Listed Companies in Tehran Stock Exchange

Year 2015, Volume: 36 Issue: 3, 1311 - 1325, 13.05.2015

Hamid Rahmani Seryasat , Reza Pirayesh Hamid Nooralidokht

Abstract

Abstract. This study investigates the relationship between earnings management and profitability of companies listed in Tehran stock exchange and its purpose is to examine the existence of earnings management phenomenon of listed companies in Tehran stock exchange. One of the executives' main objectives about earning management is creation a more stable flow, in order to support higher earning payments. More stable earnings flow can be perceived as a lower risk that leads to higher stock prices and lower costs. Tendency of business unit management to increase investors' predictive power and reduce corporate risk by earnings stability and reduce its frequency can be consider as the other objectives of earning smoothing. The level of earning frequency can be effective on risk of company and thus the capital cost of firm.  It can be affective in future debt contracts and therefore earning payments in future. The aim of the research is to establish the relationship between exchange growth rate and inflation rate with the average return on equity in the smoother earning company and non-smoother earning company. Financial data (2006 - 2013), the population and sample volume obtained by Cochran test, are equals to 75 companies. In the second stage, by using Acle indices, sample member companies based on three levels, net profit, operating profit and margin profit had been separated. Investigation results confirm the possibility of smoothing and the relationship between independent variables and return on equity of companies listed in the Stock Exchange. The main outcome of the study suggest with which a significant correlation between the increase in exchange rate and inflation rate in companies that do not make profit smoothing, there is not significant different between exchange increases rate and inflation rate and the stock return between two types of companies had been mentioned above.

Keywords

earnings management, exchange rates, inflation rates, stock returns

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