Investigating the relationship between some corporate governance mechanisms and timely announcement of profits

Dissertation for Master's Degree (M.A) in Accounting

Abstract

Profit quality has been evaluated and paid attention to by researchers from various aspects including (having predictive value, feedback value, neutrality, timeliness and honest expression). The purpose of this research is to examine the relationship between some corporate governance mechanisms and timely announcement of profits in companies listed on the Tehran Stock Exchange. In this research, the ownership structure is classified into three categories: family ownership, institutional ownership, and corporate ownership. For each class, a hypothesis was developed and its effect on the timeliness of profit was tested. The statistical population of this research is the companies admitted to the stock exchange during the years 1386 to 1391, and 101 companies have been selected by systematic and targeted exclusion. In this research, Excel software was used for initial data processing and 8Eviews software was used for data analysis. In this research, the composite linear regression method is used to evaluate the relationship between the variables. The results of the research show that there is a significant positive relationship between family ownership and institutional ownership with the timeliness of profits, and there is a positive but insignificant relationship between corporate ownership and the timeliness of profits.

Key words

Corporate governance, family ownership, institutional ownership, corporate ownership, timeliness of profits

The category of profit in accounting and financial discussions according to its qualitative discussion and also as A tool for decision-making has a special place. Also, by reviewing the history and ancient literature of accounting knowledge, we find that less of a concept or phenomenon, like profit, has been discussed and debated widely between theorists, accounting thinkers and different classes of accounting and financial professions. Based on the assumptions and also the conducted research, it can be seen that the accounting profit has a load and informational content. Calculation of accounting profit as a criterion for evaluating companies or the information that is included in its calculation has always been emphasized by professional accountants and financial commentators, also considering that financial statements provide relevant and valuable information for external groups, it has a stronger reliance on accounting numbers, especially profit and its timeliness. After the Enron and Worldcom scandals in 2002, a lot of research has been done in the field of corporate governance and profit quality Rohaida [1] (2011). Many researchers believe that the bankruptcy of these large companies is caused by weak corporate governance in them. With the occurrence of these events, the transparency of financial statements was doubted. DeFind et al.[2] (2000) stated that these scandals led to the role of corporate governance. Corporate governance includes the set of relationships between shareholders, managers, and other stakeholders, which includes a control system in order to respect the rights of the shareholders and the correct implementation of the resolutions of the assembly and prevent possible abuses. D'Angelo [3] (1981) and Rudak et al. [4] (2006) believe that appropriate corporate governance mechanism systems lead to the strengthening and skill of managers and the audit committee and effectively monitor the activities of managers and ultimately lead to the improvement of the quality of disclosed financial statements. The most important characteristics of companies is the separation of ownership from their management. During the last thirty years, many cases of conflict of interests between groups and how companies face such conflicts have been raised by economists. These cases are generally expressed under the title of agency theory in management accounting. Agency theory refers to the fact that part of the company's operations is related to agency relationships between managers and directors. In fact, the separation of share ownership and management control over the company's operations can lead to conflict of interest and agency costs arise from this conflict of interest between managers and shareholders. Without this issue of representation, the quality of reporting will not have any special problem because managers have no incentive to distort financial reports or keep information secret. Corporate governance is one of the mechanisms to reduce the representation problem. Corporate governance mechanisms can reduce earnings management opportunities and thus increase earnings quality. In agency theory, the goal of owners is to maximize wealth. Therefore, in order to achieve this goal, they monitor the representative's work and evaluate his performance.. Profit is also one of the items included in the financial statements, the timeliness of which has a significant impact on the decisions of the users of the financial statements. And it has attracted a lot of attention. One of the main groups of users of financial statements are shareholders. Therefore, it is generally believed that the ownership structure of companies leads to changes in the behavior of companies. This comes from the monitoring activities that different investors do in this structure, Jenkins[5] (2006).

1-2- Statement of the problem

Accounting profit is one of the important items of the financial statement. Profit information should be effective and available to users in order to be relevant to users' decisions. Timeliness of profit is considered as one of the features of profit quality. and it leads to the improvement of the decision-making process of users of accounting reports. Corporate governance mechanisms affect the quality of information disclosed by companies, including the timeliness of earnings. Transparent financial information disclosure minimizes agency problems and issues by reducing information asymmetry between management and shareholders. On the other hand, the weak disclosure of financial information often misleads the shareholders and thus adversely affects their wealth. In agency theory, the goal of owners is to maximize wealth, therefore, in order to achieve this goal, they monitor the agent's work and evaluate his performance. Net profit is also one of the items included in the financial statements, which has a significant impact on the decisions of the users of the financial statements and has attracted a lot of attention. One of the main groups of users of financial statements are shareholders. Therefore, it is generally believed that the ownership structure of companies may lead to changes in the behavior of companies. This comes from the monitoring activities that different investors do in this structure. Theoretically, institutions may have incentives to actively monitor management. In this case, the question is whether the different ownership structure of companies has an effect on the timely disclosure of financial information, including profit. And the result of previous research indicates that corporate governance mechanisms, such as the characteristics of the board of directors, ownership structures and audit quality, affect financial information disclosure procedures, Caramano and Wafis [6] (2005). Therefore, it can be said that corporate governance is a factor that can improve the quality of information provided by management. If the timely disclosure of profit by management is considered as a tool to reduce the information asymmetry between management and potential investors, timely disclosure of profit is of considerable importance. And it is considered a vital factor. Therefore, in this research, we investigate the relationship between some corporate governance mechanisms and the timely announcement of profits. 1-3- The importance and necessity of conducting research Nowadays, due to the expansion of economic activities, the development of financial markets, and the boom of investment in capital markets, especially the stock exchange by individuals and legal entities, the most important tool for making financial decisions is access to accurate and timely information, accurate and realistic analysis. As a result, it reduces information asymmetry. The recent bankruptcy of large companies has made society realize the importance of transparency and accountability of companies. On the other hand, the legislative authorities consider corporate governance as a useful tool to improve the quality of financial information disclosed by companies, with the assumption that the timeliness of profits contains information about their timing, form and accuracy. Studying the relationship between timely disclosure of profits and corporate governance mechanisms is important, considering the efforts that have been made in our country to introduce the nature of the corporate governance system and its importance since the monitoring of the company, recognizing the effectiveness of corporate governance mechanisms in Iran and their role in increasing timely Disclosing the profit provided by the management is one of the specific goals of this research. The results of this research will be of interest to capital market regulators because these results deal with corporate governance mechanisms that affect the quality of financial information disclosure and thus the accuracy of profit timeliness. In addition, the results will be of interest to investors and financial analysts; In the sense that these results will provide a basis for evaluating the quantity and quality of information contained in the timely disclosure of profits.