Evaluating the type of profit management and examining the effect of ownership structure and company size on future profitability management

Dissertation for Master's Degree

Orientation: Accounting

Abstract:

The recent scandal in Enron and WorldCom and other American companies caused public sentiments to be aroused. Therefore, the public believes that the management applied by company managers tends to opportunistic profit management, so that their personal interests are maximized.

The purpose of the research. , examining the type of profit management applied (opportunistic profit management or effective profit management) and the effect of ownership structure and company size on predicting future profitability in companies admitted to the stock exchange, as well as persuading and encouraging investors to invest according to the state of the company in terms of the information provided in predicting future profitability. Therefore, out of the total of 321 companies admitted to the Tehran Stock Exchange before 2011, there are 99 companies. They were selected through systematic elimination sampling during the years 1382 to 1385 and were tested using multiple regression. The variables of this research are: discretionary accrual items, non-discretionary accrual items, institutional ownership, family ownership, company size and future profitability.

The research findings show that the type of profit management applied by companies admitted to the stock exchange tends to effective profit management. Also, there is a positive (direct) relationship between the size of the company and the prediction of future profitability, and there is a negative (inverse) relationship between the family ownership structure and the prediction of future profitability. There is no evidence regarding the impact of the institutional ownership structure on the prediction of future profitability. Capital markets and joint-stock companies make it possible for a large number of capital owners, with small and large capitals, to participate in an economic unit, and in this way, the problem of providing large capitals to create large industrial projects is solved. Any country can by creating a safe and secure stock market, collect the wandering capital of the society and direct it in the ways of production and creation of added value, and through this added value (rights, dividends and the government's share as taxes, etc.) take a step towards the economic development of the country.

Researches that are carried out on various issues related to the stock market, can identify the weak and strong points and provide a great help to the stock exchange organization - in fulfilling It plays a big role, also these researches can help the shareholders to make the right decisions and the optimal allocation of economic resources will be done in a more favorable way and the investment situation will be better.

Chapter One

General Research

1-1-Introduction:

In today's economic system of the world, transferring and reporting correct financial information to decision-making centers is very important. The shareholders who provide their savings in the form of capital to the companies have no other means than the statements and annual reports of the companies to know how to manage their capital and to ensure the correctness and efficiency of the managers. The government also for various reasons, including ensuring the correct use of funds and sources of income through tax collection. It requires accurate and correct financial reports. On the other hand, accurate information on the results of various economic activities and accuracy in the implementation of accounting principles and the establishment of a suitable system for transferring information in the form of financial reports are considered to be an effective factor in achieving the country's economic plans. In evaluating the performance and profitability of a company, in addition to the fact that the reported profit figure is important for investment and has an impact on their decisions, the relationship between profit and other components of financial statements is also a subject of special attention for investors. Therefore, the research that is done about profit is very important. Today, profit management is considered one of the controversial and attractive topics in accounting research.Due to the fact that investors pay special attention to the profit figure as one of the important decision-making factors, and considering the importance of research on various issues related to the stock market and profit management, this research is a very small step to clarify financial information by evaluating the type of profit management and examining the effect of ownership structure and company size on future profitability management in companies listed on the Tehran Stock Exchange. It is hoped that it will encourage bigger and more fruitful steps. 2-1 Statement of the problem In the late 1920s, the popularization of the profit and loss statement, along with significant pressure from people outside the accounting profession, as well as the dissatisfaction of professionals and academics with the current method, brought about important institutional changes in accounting thinking and theory. One of the most important of these changes, emphasizing and paying more attention to the profit and loss statement, which was previously focused on the balance sheet, has led to the birth of a category called "profit management" [1]. Profit management is defined as the process of taking conscious steps within the scope of accepted accounting principles to bring the reported profit to the desired level. The act of bringing the reported profit closer to the target profit level is done through manipulation [2] (Melanazari and Karimi Zand, 2016, p. 84)3.

Profit is one of the best indicators for measuring the activity of an economic unit. Understanding and recognizing the behavior of accounting profit is a category that has been formed due to the expansion of quantitative management techniques and the need to pay attention to the needs of users of financial statements. This goes beyond the scope of measuring past activities and makes accounting more capable of helping decision makers. Despite the fact that there is no comprehensive theory in the field of accounting profit that is agreed upon by everyone, it still has a special validity as one of the financial decision criteria. In this regard, any flow that changes profit in a good way is also important. Because it has economic consequences, and this issue may be especially important in markets with poor capital efficiency. The recent scandals at Enron4 and WorldCom5 and elsewhere have created a general feeling that the earnings management used by corporate managers is more inclined towards opportunistic earnings management to secure the expected personal benefit of the managers, and that these managers have little regard for the interests of shareholders. The act of bringing the reported profit closer to the target level is done through manipulation. Managers for various reasons and motivations such as rewards, debt and political costs, etc., manage profits or in cases of profit smoothing. Now, if this profit management is aimed at increasing the value of the company, it can be said that it is at least acceptable to the shareholders, but in some cases managers use this strategy opportunistically and maximize their utility. Scott [3] (2000) divided profit management into two types of management (Silvia Avronika, Siddharthayudem, 2008, p. 2) [4]. 1- Profit opportunity management Ambitious [5]: (that is, management manipulates and reports profit opportunistically in order to obtain the most benefits for itself.)

2- Effective profit management [6]: (that is, management corrects and improves and reports profit with the confidential and private information it has in order to have the most benefits for shareholders.

Existing studies on profit management have generally focused on accruals. Accruals are the difference between profit and funds. Cash is derived from operations, which includes depreciation expense, changes in current assets and liabilities other than cash (such as accounts receivable, inventory, and accounts payable). As a result, assuming that cash flow is not manipulated, the only remaining way to manipulate profits is to increase or decrease accruals. Many studies from the 1990s onwards have used the "Jones" methodology to estimate discretionary and non-discretionary accruals (Mashaikhi et al., 2015, p. 38) 5.

A fundamental factor in the test of profit management in companies is the estimation of the discretionary factor and the application of managers' opinion in determining profit. The review of the literature based on profit management indicates the existence of different approaches with different identifiers in estimating and measuring management discretion in determining reported profit. One of the most important of these approaches is based on the use of discretionary accruals as an indicator to determine and discover profit management in business units. The discussion of ownership structure and company size and how they affect the company's performance is a topic that has been of interest to researchers for several decades.