The presentation of the impact assessment pattern of Corporate Governance mechanisms on the Earnings Management in Tehran Stock Exchange

The role of corporate governance is to reduce the divergence of interests between shareholders and managers. The role of corporate governance is more useful when managers have an incentive to deviate from shareholders’ interests. One example of management’s deviation from shareholders’ interests is the management of earnings through the use of accounting accruals. Corporate governance is likely to reduce the incidence of earnings management. Corporate governance is also likely to improve investors’ perception of the reliability of a firm’s performance, as measured by the earnings, in situations of earnings management. Prior studies show different results of the association between corporate governance mechanisms and earnings management. The primary objective of this dissertation is to examine the association between corporate governance internal mechanisms (ownership concentration, board independence, CEO dominance and board size) and external mechanism (institutional shareholders) and earnings management. Firm size and leverage are control variables. The population used in this study comprises firms listed on the Tehran Stock Exchange (TSE) between 2004 and 2008, the sample comprises 196 firms. Panel Data method is employed as technique to estimate the model. Also, hypotheses examined in different industries. I find that firms with higher ownership concentration and board independence manage earnings less, while firms with higher institutional holdings manage earnings more, but No evidence of significant association was found between the existence of CEO-Chairman duality and earnings management. This study also found a positive significant association between firm size and leverage and earnings management.