The Effect of CEO Power on Accrual Based Earnings Management and Real Earnings Management

Document Type : Research Paper

Authors

1 3 Ph.D. Candidate in Accounting, Faculty of Management and Accounting, Islamic Azad University, Central Tehran Branch, Tehran, Iran

2 Assistant Prof., Faculty of Management and Accounting, Islamic Azad University, Central Tehran Branch, Tehran, Iran

3 accounting department,economic and accounting faculty.central Tehran branch,islamic azad university,Tehran, Iran

Abstract

This study aims to investigate the effect of CEO power on accrual-based earnings management and real earnings management of listed companies in the Tehran Stock Exchange. These three dimensions of real earnings management in our tests are abnormal discretionary expenses, abnormal production costs, and abnormal cash flow from operations. For this purpose, data related to 108 companies from 2010 to 2020 were analyzed. The regression model of the research has been examined and tested using the panel data approach and panel data with a fixed-effects approach. The results showed that CEO power has a significant negative impact on accrual-based earnings management. Also, the results showed that the concentration of CEO power has a significant negative impact on real earnings management (abnormal discretionary expenses, abnormal production cost, and abnormal cash flows from operations). Therefore, the research results indicate that powerful executives have more independence and more supervisory roles on the board which reduces the disadvantages of stakeholder rights and reduces the agency costs. Reducing agency costs reduce information asymmetry and reduce opacity in finances and thus indicates earnings management.

Keywords

References

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Empirical Research in Accounting
Volume 12, Issue 4 - Serial Number 46
February 2023
Pages 147-172

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History

  • Receive Date: 02 April 2021
  • Revise Date: 22 February 2022
  • Accept Date: 28 September 2021

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