A study on effect of information asymmetry on earning management: Evidence from Tehran Stock Exchange

Abstract: Information asymmetry is a situation in which one party in a transaction has more or superior information compared with another. This often happens in transactions where the seller knows more than the buyer does although the reverse also may happen. Potentially, this could be a harmful circumstance because one party can take advantage of the other party & apos; s lack of knowledge. In this paper, we examine the effect of information asymmetry on earning management. To test the research hypotheses, a sample of 47 companies listed in Tehran Stock Exchange over the period 2002-2008 based on panel data was taken. In these models, the presence or absence of effects models (fixed or random) is reviewed and finally the best model is estimated. Inference is based on significant level or p-value, thus likely that any value or significance level of the test is less than 0.05 is rejected at the 95 percent confidence level. The result shows that the information asymmetry has some meaningful effects on earnings management.

How to cite this paper

 Dadbeh, F & Mogharebi, N. (2013). A study on effect of information asymmetry on earning management: Evidence from Tehran Stock Exchange.Management Science Letters , 3(7), 2161-2166.

Refrences

Aharony, J., LIN, C. J., & Loeb, M. P. (1993). Initial Public Offerings, Accounting Choices, and
Earnings Management*. Contemporary Accounting Research, 10(1), 61-81.

Beatty, A., & Harris, D. G. (1999). The effects of taxes, agency costs and information asymmetry on
earnings management: a comparison of public and private firms. Review of Accounting
Studies, 4(3-4), 299-326.

Chan, K., Chan, L. K., Jegadeesh, N., & Lakonishok, J. (2001). Earnings quality and stock
returns (No. w8308). National Bureau of Economic Research.

Cheng, C. H. (2006). Information asymmetry and earning management in Taiwanese tech industry.
Chinese Studies, 8, 99-112.

Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual
estimation errors. The accounting review, 77(s-1), 35-59.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting
Review, 72, 193-225.

Dye, R. A. (1988). Earnings management in an overlapping generations model. Journal of
Accounting research, 26(2), 195-235.

Erickson, M., & Wang, S. W. (1999). Earnings management by acquiring firms in stock for stock
mergers. Journal of Accounting and Economics, 27(2), 149-176.

Ewert, R., & Wagenhofer, A. (2005). Economic effects of tightening accounting standards to restrict
earnings management. The Accounting Review, 80(4), 1101-1124.

Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its
implications for standard setting. Accounting horizons, 13(4), 365-383.

Rangan, S. (1998). Earnings management and the performance of seasoned equity offerings. Journal
of Financial Economics, 50(1), 101-122.

Richardson, V. J. (2000). Information asymmetry and earnings management: Some evidence. Review
of Quantitative Finance and Accounting, 15(4), 325-347.

Shivakumar, L. (2000). Do firms mislead investors by overstating earnings before seasoned equity
offerings?. Journal of Accounting and Economics,29(3), 339-371.

Scott, W. R. (1997). Financial accounting theory (Vol. 3, pp. 335-360). Upper Saddle River: Prentice
Hall.

Teoh, S. H., Welch, I., & Wong, T. J. (1998a). Earnings management and the long?run market
performance of initial public offerings. The Journal of Finance, 53(6), 1935-1974.

Teoh, S. H., Welch, I., & Wong, T. J. (1998b). Earnings management and the underperformance of
seasoned equity offerings. Journal of Financial economics,50(1), 63-99.

Teoh, S. H., Wong, T. J., & Rao, G. R. (1998). Are accruals during initial public offerings
opportunistic?. Review of Accounting Studies, 3(1-2), 175-208.

Tucker, J.W. & Zarovinp, A. (2006). Dose income smoothing improve earning informativness? The
Accounting Review, 81, 127-139.

Xie, H. (2001). The mispricing of abnormal accruals. The accounting review,76(3), 357-373.