Corporate Governance and Earning Quality: Evidence from Iran

Abstract

Current paper investigated there is a relationship between corporate governance mechanisms and earning quality of the companies listed in Tehran Stock Exchange. The aim of the research is assessing the effect of the corporate governance mechanisms on improving the quality financial reporting by decreasing agency problems resulting from the conflict interest between managers and share holders. Moreover, we used cross-sectional regression for measuring effect corporate governance of companies (the composition of the board of the non-bound directors, absent from the CEO as chairman or vice chairman and institutional investors) as a dependent variable on earning quality (accrual quality, persistence and predictability). Finding of the article indicates that there is a significant and positive relationship between the ratio of non-bound members to persistent and earning predictability also the separation of the chairman or vice chairman and earning persistence and moreover, there is a significant relation between the percentages of institutional investors, accrual's quality, earning persistence. Finally, impress with control variables (size and leverage) it can be mentioned that in large firms with high leverage have been more impressionable. Corporate governance in the early twenty-first more specific and accurate. In addition, governance century after the collapse of big companies like Enron mechanisms are negatively associated with managerial (largest Energy Company in the world) and WorldCom optimism; that is, firms with greater institutional (the world's largest t elecommunications company), ownership and percentage of outside directors are likely again as one of the most important business issues is to issue less optimistically biased (or more conservative) discussed. Policy makers now acknowledge that the issue Forecasts (1). Furthermore, firms with effective of corporate governance principles can promote governance mechanisms are more likely to make or update persistence in financial markets, encourage investment a management forecast. Effective governance is more and also it leads economic growth. One of the most strongly related to the likelihood of a management important tasks of corporate governance also ensured the forecast in the face of bad news. This evidence is quality of financial reporting. Furthermore, corporate consistent with the notion that governance matters and governance is one factor that can reduce agency costs; that better governance in public corporation is associated therefore, by filtering through limiting opportunistic with less information asymmetry between management behavior of management, can lead to improve quality and and shareholder (2). reliability of reporting and also increases the value of the Given the above description, the present study also company. examined the relationship between corporate governance Prior researches expressed that institutional mechanisms, including ratio of non-bound members, ownership and the proportion of outside directors are absent from the CEO as chairman or vice chairman and favorably associated with the likelihood of forecast institutional investors with corporate earning quality. The evidence also indicates that the forecasts issued are