Investigating the effect of information asymmetry and ownership of investment funds on profit management in companies listed on the Tehran Stock Exchange

Academic Thesis for Master's Degree

Field: Accounting Major: Accounting

Profit information is the basic basis for investors to make decisions. In recent years, due to a series of considerable frauds in accounting, the issue of earnings management has attracted the attention of many academics and practitioners. However, the focus of most studies has been limited to how to evaluate earnings management, the factors affecting earnings management, and the economic results of earnings quality. The statistical population of this research is all the investment funds in the period of 1387 to 1391. This research is applied in terms of purpose and descriptive-correlation in terms of nature. In this research, profit management is investigated and evaluated using Dichau and Dicho model. In this model, the relationship between accruals and cash flows is considered to measure profit management. The results obtained from the research showed that information asymmetry does not have a significant effect on profit management. Also, there is a significant relationship between the classification of investment funds and profit management, and it can influence profit management, and the results obtained from this research can be used in all companies admitted to the stock exchange and investors and the stock exchange organization. Key words: information asymmetry, profit management, investment funds. Research

1-1 Introduction

One of the goals of financial reporting is to provide information that is useful for investors, creditors and other current and potential users in making investment and crediting decisions and other decisions. Among the important criteria that these groups use to estimate the company's profitability, predict future profits and risks related to it, as well as evaluate the management's performance, are the company's current and past profits. Profit also consists of cash and accrual items, and accrual items are largely under management's control, and he can make profit in accrual items and manage profit in today's so-called to improve the performance of the company and increase the predictability of future profits. In other words, managers try to create predictable and consistent results by choosing permitted accounting methods, because most investors and managers believe that companies that have a good profitability process and their profits do not undergo major changes have more value and more predictability and comparability compared to similar companies.

Managers smooth profits for various reasons. One of the main goals in earnings management is to create a more stable cash flow in order to support a higher level of dividend payments. A more stable cash flow can be perceived as lower risk, which leads to higher stock prices and lower borrowing costs. Another goal of profit management is the desire of business unit managers to increase the predictability of investors and reduce the company's risk. Due to the increase in the stability of profits and the reduction of its fluctuations, investors can make more accurate predictions about future profits. In recent years, due to a series of significant frauds in accounting, the subject of profit management has attracted the attention of many academics and practitioners. However, most studies focus on how to evaluate earnings management, the factors that affect earnings management, and the economic results of earnings quality.

Earnings management occurs when management applies its personal judgment in financial reporting and transaction structuring. In such a way that it provides alternative and alternative reports regarding the company's performance to mislead some stakeholders. Most of the relevant studies ignore the asymmetry of information [1] and institutional ownership and their impact on the company's profit management. Given that information asymmetry is usually related to the disparity in the amount of information obtained from multiple market participants, accounting information provides relatively accurate information to those in the market.Therefore, this information helps investors to understand the company's operational actions and therefore reduce the asymmetry between the information of investors and management, and also investment institutions are good at identifying the operating conditions of companies and monitoring management, and there is a lot of scientific discussion on how institutional investors affect earnings management.

Hunton et al. in 2006 used experimental methods to investigate whether more transparency They investigated whether it reduces the effort of profit management and the results of the research showed that the need for more transparent reporting can reduce the effort of profit management or change the focus of profit management in ways that are less visible. Zhao and Zhang [2] in 2003 showed that a relatively small part of investors are faced with the failure of mechanisms for providing services in the market and monitoring tools, which increases the costs of searching for information and interpreting capital information for Increases institutional investors. Therefore, the amount of capital information asymmetry between investors and companies should have a greater impact on the relationship between investment institutions and earnings management. (Yanhodai [3], 2013)

According to the research and studies, institutional investors play an important role in improving the quality of accounting information because they tend to monitor and guide managers, and more transparent reporting can have a greater impact on earnings management. Therefore, our aim in this research is to examine these unresolved issues, whether the level of transparency of environmental information can affect the behavior of companies' profit management in the market? As mutual fund trends continue to evolve, will different types of mutual fund characteristics have different effects on corporate governance? What is the combined effect of these two important factors on earnings management?

1-3 The importance and necessity of conducting research

Today, earnings management is considered one of the most controversial and attractive topics in accounting research, because investors pay special attention to the profit figure as one of the important decision-making factors. Given that the main role of financial reporting is the effective transmission of information to external people in a valid and timely manner. Managers can use their knowledge of the company's business activities to improve the effectiveness of financial statements, as a means of communicating information to potential investors and creditors. However, if managers have incentives to mislead users of financial statements by exercising discretion over accounting choices in financial reporting, earnings management is likely to occur. (Norush and Hosseini, 2008)

Getting involved with the issue of profit management for companies is not without risks. Therefore, logic dictates that profit management should be done only when there is sufficient motivation for it and the benefits of doing so are greater than its costs and risks. that this motivation may be related to the interests of the company and related to the personal interests of the management. (Dasgir and Hosseini, 2012)

The information environment is likely to impose many side effects on accounting information, the degree of asymmetry of the company's information can be reduced by an effective information presentation system that creates a transparent environment for the company's financial reports and profit quality accounting. Managers under stronger supervision provide more quality accounting reports that further improve the quality. It enables company profits. (Houghton [4], 2006) Therefore, one of the necessities of this research is to examine how the information environment and information asymmetry affect profit management.

Another important issue is the issue of investment institutions. Investment institutions are professional institutions that have advantages over individual investors in terms of financial support and obtaining information. High-level institutional investors take away managers' incentives for opportunistic behavior through more careful monitoring of management behavior than government deterrence activities or implicit collection and dissemination of information in the stock market. Therefore, institutional investors play an important role in improving the quality of accounting information because they tend to monitor and guide managers and make sure that managers consider the long-term value of the company instead of their own interests.