Value Relevance (VR), Earnings Management and Corporate Governance System

Abstract

Today, to make investment decisions, investors analyze the stock in the stock market and an information source used by them is the financial report of the related firms. In some cases, the report may be prepared in accordance with management policies, which is known as an earnings management. Earnings management will affect intelligence value and consequently have negative impact. Due to these issues, in this study, the relationship between VR of earnings, earnings management and corporate governance is discussed. Using a sample of listed companies in Tehran Stock Exchange and the regression model, the results showed that the ownership of institutional investors has reduced the earnings management, but compared to major shareholders and company's audit by the National Audit Office, it has increased earnings management. The results also show that there is no significant relationship between management and the stock price as an indicator of measuring the VR of earnings.

The Effectiveness of Corporate Governance in Constraining Fraud: Evidence from Listed Manufacturing Firms in Indonesia

“…Good corporate governance mechanisms have a significant negative effect on earnings management. The results of this study are consistent with research by Dowlatabadi & Filsaraei (2016), Abbadi et al (2016), Idris et al (2018) stated that independent commissioners have a significant negative effect on earnings management. Idris et al (2018) stated that independent commissioners can act as mediators in disputes that occur between managers and overseer management policies and provide management advice.…”

“…Owuigbe et al, (2019) found that independent commissioners and audit committees can minimize earnings management practices thereby reducing financial statement fraud. Nekhili et al, (2016) and Dowlatabadi & Filsaraei (2016) found a significant negative effect on good corporate governance and earnings management. Keshteli & Fathi (2015) did not find any influence on good corporate governance and earnings management.…”

“…This theory assumes that each individual prefers his own interests because basically human nature as an individual creature causes conflicting interests between principal and agent. Dowlatabadi & Filsaraei (2016) stated that this relationship between investors and managers can lead to an asymmetrical information condition. This condition occurs because managers have more information about the company as a whole compared to information received by investors so this will encourage the behavior of managers to hide some information from investors.…”

“…The mechanism of good corporate governance can be interpreted as a rule of the game, procedures, and a clear relationship between the parties that make decisions with those who supervise those decisions (Rahman & Bremer, 2016). A good corporate governance mechanism is a set of mechanisms used to limit the emergence of information asymmetry problems that can encourage earnings management (Dowlatabadi & Filsaraei, 2016).…”

Financial Distress and Earnings Management in Indonesia: The Role of Independent Commissioners

“…Witiastuti & Suryandari (2016) and Indarti, Widiatmoko, & Pamungkas (2021) also have proved the negative effect of proportion of independent commissioner on financial distress. Consistent with prior research which found that independent commissionaire has a significant negative impact on earnings management and stated that independent commissionaire able to moderate in disputes that occur between managers in form of giving advices also to oversee the management policies Dowlatabadi & Filsaraei (2016) and Abbadi et al (2016).…”