عباسعلی مرادی

In this paper, we evaluate the effect of petroleum and petrochemical industry and corporate governance on the relationship between employee differential and free cash flow with earnings management. We test the research hypotheses by applying regression and correlation techniques during 2012-2016 for companies listed in Tehran Stock Exchange. Findings show that the independence of the board has a decreasing effect on the direct relationship between employee differential and earnings management. Also, the institutional ownership has a decreasing effect on the relationship between employee differential and free cash flow with earnings management. On the other hand, Audit quality and company’s activity in petroleum and petrochemical industry are not significant on the relationship between employee differential and free cash flow with earnings management. It is necessary for investors to consider institutional ownership and independence of the board as two effective variables in decision making.