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Companies’ Strategies towards the Selection of Earnings Management Approaches: Risk Reduction or Increased Stock Market Value

    Authors

    1 Ph. D. Student in Accounting, Department of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz

    2 Associate Professor, Department of Accounting, Shahid Chamran University, Ahvaz, Iran

    3 Assistant Professor, Department of Economics, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

    4 Instructor, Department of Accounting, Ahvaz Branch, Islamic Azad University, Ahvaz, Iran

,

Document Type : Research Paper

Abstract

Purpose: Earnings and its measurement methods are among the most important determinants of the stock market value and the measures of calculating the corporate risk. As a result, increasing the modifications in the future earnings heightens the risk, affecting the investors’ decisions. Therefore, analyzing the moderating role of systematic risks in using the earning management approaches for influencing the stock market value was the overarching purpose of this is to research.
Methods: Data collected on 131 listed companies from 2008 to 2017 was tested using the panel data method and the fixed effects method to test the research hypotheses. To this end, two hypotheses were formulated and the McNichols was used to measure the accrued earnings. The Roychowdhury method was used to measure the real earnings.
Results: The findings from this research showed the positive and significant relationship between the accrued and real earning management approaches and the stock market value. Besides, companies use the optional accrued and real earnings approach to positively affect the stock market value, which is not associated with the corporate risk.
Conclusions: Based on the present research results, the variable effect of the systematic risk reduces the variable coefficient of the accrued and real earning management in relation to the stock market value. In other words, the corporate systematic risk does not have a moderating effect on the relationship between the earning management approaches and the stock market value. The capital market inefficiency and investors’ failure to correctly analyze and interpret the information in financial statements and corporate risks, as well as managers’ ability and opportunistic attempts to change the earning data and the investors’ expectations, have suppressed the effect of systematic risks on the selection of the earning management approaches.
Contribution: In this research, the role of the systematic risk in the selection of the earning management approaches for influencing the stock market value and performance is researched for the first time. Furthermore, the findings from the present research may explain the reasons for the company managers and investors’ negligence in taking systematic risk into account.
 

Keywords

References

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Financial Accounting Knowledge
Volume 6, Issue 3 - Serial Number 22
December 2019
Pages 189-213
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