Abstract

Literature review of the research suggests that equity incentives have mutual effect on earnings management. If corporate governance is strong, equity incentives will caused alignment in equity and management incentives; but if corporate governance is weak, equity incentives will caused earnings management. According to this, the main objective of this research is evaluating the effect of corporate governance on the relationship between earnings management and equity incentives. For this purpose, using multiple regression, the effects of strength and weakness of corporate governance, the ratio of each company-year bonuses to each industry-year bonuses, and Interaction of equity incentives and corporate governance on the real earnings management have been estimated. The sample of research consisted of 160-year-Company between the years 1388 to 1393, that have been selected by using systematic elimination from the companies listed on the Tehran Stock Exchange.
The results showed that when supervision is high and corporate governance is strong, providing discount, deferred sales to change the normal operation of sales and reduce research and development (R&D) expenditure to increase sales and profit (compared to when such mechanism are not established) are limited in throughput. Reducing the severity of monitoring, leading to opportunistic behavior of management and it increase the level of sales through manipulation the discount rates of sales and credit conditions.