Investigation of the Relationship between Surplus Free Cash Flows and Earnings Management, with an Emphasis on the Moderating Role of Audit Quality (Evidence from Tehran Stock Exchange)

In Agency theory of free cash flows, companies with high free cash flows and low- growth opportunities, possibly Experience high earning management. high quality auditors will be more likely to detect the practices of earnings management And one way to reduce surplus free cash flow is due to earnings management.
In the present study, Relationship between surplus free cash flows and earnings management, with emphasis on the moderating role of audit quality (evidence from Tehran Stock Exchange) were examined. With this regard, one main and three subsidiary hypotheses were designed and 97 companies, including the companies listed on Tehran Stock Exchange during the 10- year period, 2005 to 2014 were selected. Multiple regression is implemented to test these hypothesis.
The results indicated that audit quality of audit change and size has adjusted the relationship between surplus free cash flow and earnings management which caused decreased earnings management in companies with high surplus free cash flow. and therefore resulted in the effectiveness of the company’ investment decisions.