Abstract

The purpose of this paper is to examine the effect of corporate governance on the relationship between the firm value and earnings management for the listed companies in Tehran Stock Exchange during period 1386-1391. With the aid of the TOPSIS method an index has been developed to rank the firms on the basis of their corporate governance quality. This index consists of six criteria including board size, board independence, CEO duality tasks, institutional ownership, ownership concentration and the independent auditor. Besides, the firm value and earnings management are measured by Tobin's Q and Modified Jones Model respectively. The findings of this research show that investors conceive earnings management negatively and earnings management has a negative effect on firm value. But in corporations with high quality corporate governance this effect is reduced. In other words, corporate governance mechanisms has a positive effect on the relationship between firm value and earnings management and firms with a higher corporate governance score face a less negative effect from earnings management.