Explaining the Relationship between Corporate Governance and Earnings Quality in Iran

Document Type : Research Paper



Using panel data analysis, this paper examines the relationship between corporate governance and quality of reported earnings. The sample is comprised of 117 listed in Tehran Stock Exchange (TSE) during the period of 1386-1388. Prior research has used many surrogates for corporate governance. However, the criticism of the extant research has been that corporate governance comprises many facets and is not uni-dimensional. Quality of earnings is measured in seven ways. Empirical tests demonstrate that the overall governance measure is 1) negatively related to the accrual quality, earnings persistence, earnings management and conservatism, 2) positively related to the earnings predictability and earnings timeliness, and 3) not related to the value relevance. In other words, the results suggest that there are multiple dimensions to the relationship between earnings quality and corporate governance that preclude supporting the spirit of either the monitoring or the assurance hypotheses. Furthermore, our results suggest that disaggregating corporate governance measure into more components cause to decreasing in explanatory power of the models. Finally, the relationship between corporate governance and various measures of earnings quality in different industries is not homogenous.


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