Review of the Relationship between the Relevance Value of Accounting Information and Profit Management and Corporate Governance in Companies Listed in Tehran’s Stock Exchange

Author Name(s): Darab Rahmati, *Karim Nemati
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Abstract

This study aims to investigate the relationship between the relevance value of the accounting information and profit management and corporate governance in companies listed in Tehran’s stock exchange. This study is an applied – correlational research. Data collection has been done by using information reported in the financial statements of the companies listed in Tehran’s stock exchange. In the respect of meeting the goals of the study, five hypotheses have been developed. The statistical sample of the research includes 114 companies during the five-year time interval from 2010 to 2014. In order to analyze the data, Excel and Eviews 7 software has been used. In order to measure the hypotheses, regression test, Durbin-Watson test and Hausman and Limer test have been used and the results obtained from this study showed that there is a significant relationship between the value of the relevance of the accounting information and profit management in companies listed in Tehran’s stock exchange. And there is a significant relationship between the value of the relevance of the corporate governance and profit management in companies listed in Tehran’s stock exchange.

Introduction

The accepted standards of accounting in various countries allows the managers to have a wide range of authorizations in selecting various methods of accounting in order to calculate the profit. Of course the managers might not use all of these authorizations for meeting the company’s goals. Accruals are controlled more by the management than items in cash composing the profit. In fact, management of a business firm can manage the firm’s profit for their own purposes by using these permitted flexible methods (Samaee and ShariatPanahi, 2004: 58). The purpose of the management is to present a dynamic and stable company in terms of investors and capital market. Because most investors and managers believe that companies with a suitable profitability process and their profit does not go through major changes have more value and the capability to predict and compare them in comparison with similar companies (Noroosh, Sepasi and Nikbakht, 2005: 41).

Conclusion

The results obtained from the first hypothesis show that there is a significant relationship between operational cash flows and external financing of the companies listed in Tehran’s stock exchange. the probability of the t-value associated with the variable operational cash flows is equal to 0.000, which is lower than 0.05 and its coefficient is equal to -0.304; therefore, it can be said that there is a negative significant relationship between operational cash flows and external financing of the companies listed in Tehran’s stock exchange; in such a way that by increasing operational cash flows, the external financing in the companies listed in Tehran’s stock exchange is reduced and therefore, in such companies, often the cash flow created inside the company is selected as the first financing solution and liability and share issue are respectively the next priorities of financing. Accordingly, profitable companies which often have good cash flows tend to borrowing less. Therefore, companies with proper operational cash flow is used less than external financing. The results of this research complies with the researcher of Fazari, et al. (1988), Myers (1984), Garcia and Sogrob (2014) and they do not comply with the researches of George, et al. (2010) and Bagherzadeh (2003).

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