The Impact of Environmental Complexity and Dynamics on the Relationship between Earnings Management and Information Asymmetry

The business environment is regularly associated with complexity and dynamics, and increased information asymmetry enhances earnings management scope obtained from the opportunities achieved as result of accountability of managers to inherent limitations of such environments. In such environments, investors will be faced with problem to detect and identify earnings management. This study examines the impact of environmental complexity and dynamics on the relationship between earnings management and information asymmetry in companies listed on the Tehran Stock Exchange. For this purpose, a system of simultaneous equations model was applied using seemingly unrelated least square (SURE) method in panel data. The results of investigation of 90 companies during 2008 to 2013 showed that there is a positive relationship between earnings management and information asymmetry and this relationship is weakened for companies that their commercial operations were faced with of high share price volatility.