Investigating the relationship between the joint board of directors, discretionary disclosure and profit quality in companies listed on the Tehran Stock Exchange

Master's Thesis in Accounting (M.A)

Abstract

In this research, the relationship between the joint board of directors, discretionary disclosures, and profit quality in 57 companies listed on the Tehran Stock Exchange from the beginning of 2015 to the end of 2010 is examined. We have considered optional accrual items as "dependent variable" and examined and tested the relationship between the independent and dependent variable. The results of the test show that there is no significant positive relationship between the joint board of directors and the optional disclosure level of the companies. Also, there is no significant relationship between the joint board of directors and profit quality in companies.

Introduction

The theory of profit quality was first proposed by financial analysts and stock exchange brokers. They concluded that the reported profit does not show the profitability of companies as much as it should be thought. They found that the analysis of financial statements of companies is a difficult task due to the many weaknesses in measuring accounting information. In order to express the usefulness of profit in determining the value of the company, we should not only pay attention to the reported amount, but also pay attention to the quality of the reported profit. did Also, one of the most important ways to increase the credibility of a company's ranking is to choose the best solutions for disclosures in financial reports.

In this research, we investigate the relationship between the joint board of directors, discretionary disclosures and the quality of profits in companies listed on the Tehran Stock Exchange.

1-2- Statement of the problem and explanation of the issue

Among the various researches about corporate governance in the late 20th century, management Common[1] has been one of the most controversial topics. (Richardson [2] 1987) Joint management is defined as: the presence of a common member in special boards of directors or a situation in which a member affiliated with one organization is also a member of the board of directors of another organization. (Mizrucci [3] 2010 - Reppenhagen [4] 1996) While joint managements have been common for years and have been formed for various reasons, the literature on the effects of joint management has branched out. (Fama and Jensen [5] 1983) Although managers undoubtedly play an important role in organizations, positive and negative performance effects caused by joint management are known. Since the issue of corporate governance and joint management is different in different countries, more researches have been done in different countries. While researchers have addressed the effects of joint management in different countries, the unique environment in Iran has not yet been widely studied. This study investigates the capital market of Iran, which is an ideal environment for joint management, because it has a large number of companies that are strictly controlled. (Smith and Amuako-Edo [6] 1999) Voluntary disclosure is the disclosure of information beyond the legal obligations established by the legislative bodies. Information disclosure is the process of providing information from the reporting company to the financial markets. Companies that voluntarily disclose information that is not mandated by legislative authorities, try to shape the expectations of market participants and thus benefit from the terms of dealing with these persons by disclosing additional information (Madhani[7] 2009).

Texts and writings related to voluntary disclosure show positive benefits resulting from increasing the level of disclosure. are (for example Butosan 1997 [8]) Although disclosure is highly influenced by the cultural environment in which the company operates. In Iran, the amount of voluntary disclosures is very different among different companies. (Bojaki and McConomie[9] 2002). Also, the quality of profit among companies is very different from each other. While the joint boards benefit from wider accounting powers, the impact of this interconnection on the quality of profit has not yet been widely studied.

In this study, it is investigated whether joint management has a negative relationship with the quality of accounting, especially with voluntary disclosure and the quality of profit.

1-3- The importance of the subject and the necessity of research

This article can contribute to the development of the subject literature by determining the negative and positive effects of joint management. Although there have been suggestions to reduce co-management, these suggestions have not always had empirical support. (Bard et al. 2010, Ferris et al. 2003 [10]) As stated in various texts, joint management members may have a positive accounting effect on a company's performance, and the contradiction of joint management results in less voluntary disclosure, but the growing quality of earnings can be explained by expanding the alliance effect theory [11]. (Wang [12] 2006) This theory predicts that ownership concentration creates an incentive to report high quality earnings, because controlling shareholders have the incentive to maintain earnings management within appropriate limits. Therefore, since joint managers have almost always interacted with shareholders, companies with joint management probably have more stable motivation and sufficient supervision, but they have less motivation to disclose proprietary information. Some researchers and legislators in North America believe that multiple external management in some way causes the formation of managerial opportunism, but recently, in various texts, they found that managers who are members of the boards of directors of different companies affect the long-term performance of the company. are effective (Bard et al. 2010, Ferris et al. 2003, Geltkaise and Boyd 2011 [13]).  Companies want to have managers with a good work history because this can be an information mechanism for the market. (Deutsch and Rose [14] 2003) Joint management allows the company to monitor the behavior of other companies and reduce the instability caused by strategic actions. is that companies make voluntary disclosures in order to reduce information risk; But at the same time, they try to avoid disclosure practices that are difficult to maintain in the future.

In determining the final level of disclosure, companies should consider the weight of specific cost factors against the potential benefits of greater disclosure. In determining the main benefits of voluntary disclosure, companies should consider the initial costs of the level of disclosure. This means that the cost of preparing and disseminating information and the cost of competitive damages that are related to voluntary disclosure should be considered (Madhani 2009). One of the important limitations of voluntary disclosure is the balance between benefit and cost. According to the theoretical concepts of financial reporting, the benefit obtained from the information should be more than the cost of its preparation and presentation. Therefore, the evaluation of benefits and costs is basically a judgment process that is more important for large companies. These costs are borne by the company, but the final users of the financial statements benefit from it, and in the second step, the company can take advantage of the secondary benefits and gain competitive advantages from the disclosure. Some believe that the information disclosure by the companies is not done completely, because the managers are hesitant about having certain information at their disposal (Parsaian, 2018). But what is clear is that companies, based on legal approaches and accountability, oblige themselves to publish all the information that has a positive effect on the functioning of the market. In particular, the identification of the relationship between how joint management makes better use of, or possibly misuses, voluntary disclosure is explored. In the stock exchange companies of Tehran and reflecting, summarizing and preparing and providing reports to decision makers, creditors and other users for the purpose of their investment in the stock market. In addition, helping to improve the measurement and estimation of outputs and inputs in order to identify bottlenecks and other areas that need to be improved and checking whether the information prepared by companies can be a criterion for measuring the relationship of the board of directors with voluntary disclosure and its effects on the quality of profit.