The Relationship between upward Earnings Management Incentives and Corporate Governance Mechanism with Asymmetric Expense Behaviour

The relationship between upward earnings management incentives and corporate governance mechanism and their joint effects with asymmetric expense behavior is investigated in this research.
The relationship between logarithm of SG&A ratio and logarithm of operating revenue ratio is used to measure the asymmetric expense behavior. The corporate governance mechanism is measured by 7 components including board size, the percentage of independent directors ownership, the percentage of institutional shareholder ownership, ownership concentration, the percentage of major shareholders ownership, the percentage of management ownership, auditor type and a combined proxy as a whole. Return on assets (ROA) and changes of net income to total assets ratio are used to measure upward earnings management incentives. So 98 corporation's financial data listed on Tehran Stock Exchange (TSE) are collected (840 firm-year) during 2005 to 2014 using certain criteria. GLS- pooled method is run to analyze data.
The results reveal that expense behaves asymmetric on average. Additionally, expense behaves symmetric in firms with upward earnings management incentives with an annual Lag in comparison with others. Corporate governance mechanism has no significant relationship with asymmetric expense behavior on average. This mechanism does not reduce symmetric behavior of expense in firms with upward earnings management incentives.