Investigating the Effect of Firm Management Changes on Earnings Management

One of the motivations for management to utilize earnings management is the time frame during and surrounding management changes in an organization. The reported profit and earnings management are important financial information and activities which are identified by researcher as important factors in the study of organizations and their comparisons. This study investigates earnings management during management changes by highlighting companies that were listed in the Tehran Stock Exchange (TSE) between 1383 and 1387. By utilizing a modified Jones model, a set of discretionary accruals were estimated and were used as inputs for compare means (t-test), ANOVA (F-test), and regression coefficient methods. Changes of the CEO or changes in the majority of the board of directors used as factors identifying change in management. These tests showed that although positive earnings management occurred in the year preceding the management change, this would shortly be followed by a negative earnings management in the year which the change took place with a final upward trend in the year after the change occurred. This study also showed that earnings management is not affected by firm size and dependant upon the industry which firm operates in.