Author
University of Semnan, Iran
,
Document Type : Research Paper
Abstract
Objective: the earning management literature attempts to understand why managers manipulate earnings, how they do so and the consequences of this treatment. These questions are the focus on a significant area of inquiry within financial reporting research. one of the important factors affecting earning management can be diversification strategy. Therefore the purpose of this paper is to investigate whether diversification strategy, by making an explicit distinction between business and geographic diversification, provides a favorable environment for earnings management or whether it mitigates this phenomenon.
Method: the research in terms of objectives is practical and nature of method investigating variables is correlation. the research based on a sample of 97 companies from listed companies in Tehran Stock Exchange over the period 2009–2017 and making an explicit distinction between industrial and geographic diversification, multivariate regression model based on panel data are used to test whether diversification strategy has an impact on earnings management. the study makes use of discretionary accruals as a proxy for earnings management and the modified Jones model is used to measure discretionary accruals.
Results: the findings of the study reveal that business and geographic diversification by itself haven’t any significant impact on earnings management but a combination of business and geographic diversification mitigates this phenomenon.
Conclusion: the results of the study revealed the evidence in support of the portfolio theory and risk-reducing theory, because the theories argue negative relationship among earnings management and diversification strategy.
Contribution: since to examine the relationship between diversification strategy and earning management an explicit distinction has considered between industrial and geographic diversification and also combination of industrial and geographic diversification is the innovation of this research.
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