The Impact of Economic Recession on the Relationship Between Real Earnings Management and Accrual-Based Earnings Management

Document Type : Research Paper

Authors

1 Department of Accounting, Faculty of Social Sciences, Economics, and Accounting, Razi University, Kermanshah, Iran.

2 Department of Accounting, Faculty of Humanities, University of Jiroft, Jiroft, Iran.

10.22103/jak.2025.24739.4143

Abstract

Objective: The purpose of this study is to examine the impact of economic recession on managerial behaviors in utilizing real earnings management and accrual-based earnings management in the Tehran Stock Exchange.
 
Method: This applied research adopts a correlational and ex post facto design. To achieve the research objectives, financial data from 128 TSE-listed companies were analyzed over a 12-year period from 2011 to 2022, representing a total of 1536 firm-years. The study employed multiple regression models to test its hypotheses.
 
Results: The findings reveal a positive and statistically significant relationship between economic recession and real earnings management (REM). During recessionary periods, managers simultaneously employ both real earnings management and accrual-based earnings management (AEM); however, the intensity of REM is markedly greater in recession compared to non-recession periods. Moreover, the results of sensitivity analyses confirm the robustness and stability of the initial findings for both research hypotheses.
 
Conclusion: Based on the statistical findings, it can be concluded that earnings management becomes more intense during periods of economic recession, and managers also use both actual and accrual earnings management to achieve their target profits during economic recession. Therefore, a deeper examination of companies' financial information by users becomes more important during periods of economic recession.

Keywords

Main Subjects

References

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  • Receive Date: 27 January 2025
  • Revise Date: 10 March 2025
  • Accept Date: 29 April 2025

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