The Impact of Audit Quality, Competitive Environment and Corporate Governance on Managers 'Unethical Behaviors: with Emphasis on Two Dimensions of Decision-making Horizon and Type of Forecast in Managers' Behavior

Document Type : Research Paper

Authors

1 Assistant Professor of Management, East Tehran Branch, Islamic Azad University, Tehran, Iran.

2 Assistant Professor of Accounting, Qom University, Qom, Iran.

10.22103/jak.2021.16609.3347

Abstract

Objective: This research is in the field of corporate governance and behavioral finance. Conflicts of interest between directors and shareholders create agency costs for shareholders' equity that are borne by shareholders. Two sources of this conflict are managerial optimism and managerial myopia. Managerial optimism is favorable if it is about the manager's personal ability or about market conditions, but entrepreneurs and executives are often hurt by optimism bias. On the othe hand, myopic managers avoid spending on activities that benefit the company in the long run, such as research and development, because of their attitudes toward short-term profits or other factors such as short-term institutional investors. Expenditures in research and development activities are serious drivers of innovation in the company that contribute to the company's competitive advantages and sustainable economic development. Accordingly, there is an argument that in the country's economic environment, regulatory stimuli including corporate governance, audit quality and competitive environment of the company can create transparency and effective supervision to cause a fundamental limit on managers' unethical behaviors such as myopic and optimistic behaviors.
Methods: for this purpose, According to different considered theories, six hypotheses are developed and data on 155 companies listed in Tehran Stock Exchange for the period between the years 2008 to 2017 are analyzed. In this study, a multivariate regression model has been used to analyze the test of research hypotheses. The research method using Panel data method with fixed effects approach and using logistic regression are tested.
 
Results: Findings showed that audit quality has a negative and significant effect on unethical behaviors of management and causes limitations in opportunistic behaviors of management. There is an argument that audit quality has a positive and significant effect on the quality of disclosure. Therefore, the higher the audit quality, the more accurate the estimates and monitoring. Also, the results confirm that corporate governance will reduce and limit unethical management behaviors by increasing the company's supervisory capacity. Stronger corporate governance, by closely monitoring and controlling managerial behavior and decisions, is a limiting factor in managerial biased behaviors and reduces overly optimistic and myopic behaviors. Managers of competing companies compete fiercely to maintain market confidence, and these managers try to gain more market trust with accurate predictions. Despite prediction based on theoretical backgrounf, the results indicate that the company's competitive environment has no significant effect on unethical management behaviors.
 
Conclusion: According to agency theory, there is an argument that the interests of managers are not necessarily in line with the interests of other stakeholders, and managers are always trying to maximize their interests. On the other hand, regulatory mechanisms are at the disposal of other stakeholders to limit the unethical behavior of managers. The results of this study also support the argument that regulatory mechanisms limit the opportunistic behaviors of management because these mechanisms promote transparency and require managers to observe ethics in predictions and strategic decisions. On the other hand, the findings show that the competition mechanism in Iran has no effect on controlling opportunistic management behaviors.

Keywords

References

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Journal of Accounting Knowledge
Volume 12, Issue 3 - Serial Number 46
December 2021
Pages 147-168

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History

  • Receive Date: 13 October 2020
  • Revise Date: 15 January 2021
  • Accept Date: 25 May 2021

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