Determining the Relationship between Auditing Quality and Earnings Management for Listed Companies in the Tehran Security Exchange

This study investigates the relationship between auditing quality and earnings management for the listed companies in the Tehran Security Exchange. In approaching this problem, the auditing quality is expended from two criterion, namely the auditor size and the auditor tenure. For calculating of earnings management, the adjusted Jones model is employed.Our study sample included 61 listed companies in the Tehran Security Exchange (TSE) during 2002 to 2008. In testing the hypotheses, the maximum likelihood-binary logit regression model and the econometric software of Eviews 6, were exerted.The results of the study reveal that there is a positive and weak relationship between earnings management and the auditor size and the auditor tenure, but this relationship is not significant statistically. Because of the existence of co-linearity in the designated comprehensive model, the relationship between variables was investigated separately. The findings show that there is a positive relationship (but not significant) between earnings management and the auditor size, and a positive and significant relationship between earnings management and the auditor tenure. In this study for determining the total significance in the regression model, the McFadden determinant coefficient and Likelihood Ratio, were employed.