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The relationship between profit smoothing and information asymmetry in the life cycle of Tehran Stock Exchange companies

Number of pages: 124 File Format: word File Code: 29824
Year: Not Specified University Degree: Master's degree Category: Librarianship
Tags/Keywords: Company life cycle - Information asymmetry - Optional accrual items - Profit smoothing
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  • Summary of The relationship between profit smoothing and information asymmetry in the life cycle of Tehran Stock Exchange companies

    Dissertation for receiving a bachelor's degree Major in the field of Accounting

    Direction: Accounting

    Abstract:

    Profit smoothing is defined as the effort applied by management to reduce abnormal changes in profit in terms of accounting principles. In this research, the relationship between profit smoothing and information asymmetry in the life cycle of business units has been investigated and measured. In order to carry out the research on the subject and also to test the research hypotheses, all the companies admitted to the Tehran Stock Exchange in the period of 1387-1391 have been considered as a statistical population. The number of samples is 87 companies based on research limitations in a 5-year period. In this research, regression analysis and Pearson's correlation coefficient have been used to test the main hypotheses of the research. Information gathering tools are document mining and databases. The required data includes the smoothing and asymmetry of financial information contained in their audited financial statements and financial reports and official publications of the Stock Exchange Organization, which publishes weekly, monthly, and annual financial statements of accepted companies, and also from the stock exchange's databases. In line with the aim of the research, 3 hypotheses have been formulated and multivariate regression model and combined data have been used to analyze the data and test the hypotheses. The most important research findings are that there is no significant relationship between profit smoothing and information asymmetry in any of the stages of the company's life cycle. The obtained results indicate that investors are unaware of profit smoothing. Key words: profit smoothing, discretionary accruals, company life cycle, information asymmetry. In addition, in practice, accountants, auditors and financial analysts have faced this phenomenon and its consequences in the process of financial reporting, of which profit reporting is one of the most important components. Knowing the different dimensions of profit smoothing behavior is in line with identifying the characteristics and limitations of accounting profit. If it is possible to provide a theoretical framework for this phenomenon, which seems to have not been possible so far, it is possible to achieve progress in the qualitative field of profit reporting.

    A major contribution of research and theoretical studies on the issue of profit smoothing belongs to developed countries, therefore, considering the fundamental differences in macro environmental variables such as economy and culture, the expansion of this research to developing countries can be effective in completing the research literature of this phenomenon. In addition, it seems that from the point of view of financial affairs, the results of this research provide some necessary grounds for the efficiency of the capital market in the desired economic environment. The present research examines the relationship between profit smoothing and information asymmetry in the life cycle of Tehran Stock Exchange companies.

    In this chapter, the generalities of the research are presented, in fact, after the introduction at the beginning of the chapter, the statement of the problem is explained. Then we describe the goals, motivation, hypotheses, importance of the subject and the research method and address the scope of the research in terms of time, place and topic.

     

    1-2 statement of the problem

    The main tool for transferring information to external users is the basic financial statements. The profit and loss statement is one of the basic financial statements that is of great importance in evaluating the responsibility of the management or their accountability for the resources they have. The profit and loss statement includes the returns from the resources under the control of the business unit's management and reflects the business unit's performance during the period in question. Since the responsibility of preparing financial statements rests with the management of the business unit and due to the direct access of managers to information and the right to choose optional accounting methods, there is a possibility of smoothing the profit.Due to the fact that investors pay particular attention to the profit figure as one of the important decision-making factors, these researches have their own importance from the behavioral aspect. One of the motivations of profit management is to reduce the error of profit forecast in the current and future period. Managers are interested in seeing their budgeted profit forecasts come true; If this is not achieved, the managers use tools to manage the profit. Opportunistic use of profit smoothing may adversely affect the transparency of reported accounting data. One of the economic consequences of non-transparent information is that it may affect investors' willingness to buy company shares. In this way, less transparency causes less liquidity and as a result increases the company's capital cost due to increased liquidity risk. In addition, high transaction costs due to low liquidity may reduce share price discovery and thus increase the uncertainty associated with share prices. On the other hand, based on the concept of information asymmetry, high profit variability leads to more informational benefits for informed investors than for uninformed investors. The increase in variability of reported profits makes the trading losses of uninformed investors appear larger and forces them to exit the market. Also, the company life cycle theory assumes that companies and economic enterprises, like all living organisms that are born, grow and die, show the growth and aging of business units based on controllability and flexibility. In their youth (growth period), organizations are very flexible, but most of the time they are uncontrollable. As organizations age, relationships change, control increases and flexibility decreases. Finally, with aging (decline) the ability to control will also decrease. When the business unit has the ability to control and is flexible, it means that it has the advantages of youth and old age. This situation is known as the stage of evolution (maturity) and these policies are reflected in the accounting information of companies. According to the above issues, the following questions are raised in this research:

    Is there a relationship between profit smoothing through discretionary accruals and information asymmetry of the business unit in the growth stage?

    Is there a relationship between profit smoothing through discretionary accruals and information asymmetry of the business unit in the maturity stage? Is there a relationship?

    Is there a relationship between profit smoothing through discretionary accruals and information asymmetry of the business unit in the decline stage?

    1-3 Importance of Research

    The concept of life cycle is a biological metaphor about organizations. The company life cycle theory assumes that companies and economic enterprises, like all living things that are born, grow and die, have a life curve or life cycle. Like living organisms, business units show growth and aging based on controllability and flexibility. In their youth (growth period), organizations are very flexible, but most of the time they are uncontrollable. As organizations age, relationships change, control increases and flexibility decreases. Finally, with aging (decline) the ability to control will also decrease. When the business unit is controllable and flexible, it means that it has the advantages of youth and old age. This situation is known as the stage of development (maturity). The life cycle theory is one of the theories of organization design and states: while organizations go through four evolutionary stages of the life cycle, they undergo drastic changes in terms of structure, control system, innovation and goals. Finally, according to the issues discussed above, in this research, we investigate the relationship between profit smoothing and information asymmetry in the stages of the life cycle.

    1-4 Theoretical framework and research model

    In the preparation of financial statements, accountants inevitably use different and permitted accounting methods and procedures. compared The use of different procedures and policies and changes in the aforementioned methods, under the principles and standards of accounting by companies, is sometimes a creativity and art.

  • Contents & References of The relationship between profit smoothing and information asymmetry in the life cycle of Tehran Stock Exchange companies

    List:

     

    Abstract: 1

    Chapter One: General Research

    1-1 Introduction. 3

    1-2 statement of the problem. 4

    1-3 The importance of research. 5

    1-4 theoretical framework and research model. 6

    1-5 research hypotheses. 7

    1-6 research objectives. 8

    1-6-1 Scientific objectives. 8

    1-6-2 Functional objectives. 8

    1-6-2-1 direct users. 8

    1-6-2-2 indirect users. 8

    1-7 study limits. 9

    1-7-1 The spatial territory of the research. 9

    1-7-2 Time domain of research. 9

    1-7-3 Subject area of ??research. 9

    1-8 Definition of keywords and terms. 9

    Chapter Two: Review of Research Literature

    2-1 Introduction. 12

    2-2 Profit smoothing and its concepts. 13

    2-2-1 Profit smoothing. 13

    2-2-2 Reasons for profit smoothing by managers. 13

    2-2-2-1 company size. 13

    2-2-2-2 income tax. 14

    2-2-2-3 debt contracts. 14

    2-2-2-4 distance of actual operational activities from expected operational activities. 14

    2-2-2-5 profit variability. 14

    2-2-3 profit smoothing incentives. 15

    2-2-4 dimensions of profit smoothing. 18

    2-3 Formation of the concept of information asymmetry. 19

    2-4 Introduction of the concept of information asymmetry to capital markets. 21

    2-5 Information asymmetry and Tehran Stock Exchange. 21

    2-6 times in information distribution. 22

    2-7 Information asymmetry and market efficiency. 23

    2-7-1 weak form. 24

    2-7-2 semi-strong form. 25

    2-7-3 strong form. 25

    2-8 Information asymmetry and the price range of stock purchase and sale offers. 26

    2-9 Information asymmetry and messaging hypothesis. 28

    2-10 Consequences of information asymmetry in the capital market. 28

    2-11 Company life cycle theory. 31

    2-12 How to classify companies into life cycle stages. 36

    2-13 research background. 38

    2-13-1 Internal research. 38

    2-13-2 Foreign researches. 45

    Chapter 3: Research implementation method

    3-1 Introduction. 50

    3-2 research methods. 51

    3-3 Study community and statistical sample. 51

    3-4 research model and method of measuring variables 53

    3-4-1 analytical model of research. 53

    3-4-2 Research model. 53

    3-5 research hypotheses. 59

    3-6 The scope of research. 59

    3-6-1 The spatial territory of research. 60

    3-6-2 Time domain of research. 60

    3-6-3 Subject area of ??research. 60

    3-7 data collection methods 60

    3-8 information analysis methods. 61

    3-8-1 Estimation method of linear regression models. 61

    3-8-2 The logic of hypothesis testing. 61

    3-8-3 test criteria. 62

    3-8-4 determination coefficient. 62

    3-8-5 types of data 62

    3-8-6 Durbin-Watson recognition test. 63

    3-8-7 Kolmogorov-Smirnov test Ks. 64

    3-8-8 test of inequality of variances of disorder sentences. 64

    3-8-9 regression analysis. 64

    3-8-10 panel data models. 66

    3-8-11 Lemer test (significance of individual effects) 67

    3-7-12 Hausman test. 69

    3-7-13 Manai test. 69

    3-7-14 Introduction of Eviews software. 70

    Chapter Four: Data Analysis

    4-1 Introduction 72

    4-2 Description of findings 73

    4-3 Analysis of findings 76

    4-3-1 Analysis of presuppositions 76

    4-4 Test of research hypotheses. 84

    Chapter Five: Conclusion and Suggestions

    5-1 Introduction. 93

    5-2 Evaluating and explaining the results of hypothesis testing 93

    5-2-1 Examining the first main hypothesis. 94

    5-2-2 Examination of the second main hypothesis. 94

    5-2-3 Examining the third main hypothesis. 94

    5-3 suggestions 95

    5-3-1 suggestions in line with research findings. 95

    5-3-2 Suggestions for future research. 96

    5-4 limitations of conducting research. 96

    Sources and reference

    Persian sources: 99

    Latin sources: 102

    Appendices

    Appendix A: Questionnaire. 106

    Latin abstract. 112

     

    Source:

     

    Persian sources:

    Ebrahimian, M., 1389, "Investigating the effects of profit smoothing on the economic added value of companies listed on the Tehran Stock Exchange", Master's thesis, University of Sciences. 112

     

    Source:

     

    Persian sources:

    Ebrahimian, M., 1389, "Investigating the effects of profit smoothing on the economic added value of companies listed on the Tehran Stock Exchange", Master's thesis, Arak University of Sciences and Research.

    Ahmedpour Kahgari, A., Ajam, M. 1389, "Investigation of the relationship between the quality of accruals and information asymmetry in listed companies and Tehran Stock Exchange", Stock Exchange Quarterly, 11: 124-10.

    Aghaei, M., Kouchaki, H., 1374, "Thoughts about profit display", Accounting Review Quarterly, No. 15, 32-44.

    Belkoui, A., translated by Ali Parsaian, 1381, "Accounting Theories", Bureau of Cultural Research.

    Pour Heydari, A., Aflatoni, A., 1385, "Investigation of profit smoothing motives in companies listed on the Tehran Stock Exchange", Journal of Accounting and Auditing, Faculty of Management, Tehran University, No. 44. 70-55.

    Tojki, M., Qaemi, M. et al. 1382, "Effect of profit smoothing on the stock returns of companies listed on the Tehran Stock Exchange", Journal of Accounting and Auditing, Tehran University Management School, 10th year, number 33. 150-131.

    Jalili, M., 1378, "Reporting of scoring and credit rating in banking and insurance", Terme Publications.

    Hossein Ghaemi, M., Watanparast, 1384, "Investigation of the role of accounting information in reducing information asymmetry in Tehran Stock Exchange", Journal of Accounting and Auditing, Tehran University Management Faculty, 41: 103-85.

    Khadamipour, A., Qadiri, M., 1389, "Investigation of the relationship between accruals and information asymmetry", Journal of Accounting Advances of Shiraz University, 2: 29-1.

    Dehdar, F., 1386, "Design and explanation of the superior valuation models based on accounting earnings and cash flow in the life cycle process of the company", doctoral thesis in accounting, Tarbiat Modares University.

    Shahalizadeh, B., Zenjidar, M., 1391, "Investigation of the efficiency of the adjusted DuPont ratio and its components for predicting future profitability in each of the life cycle stages of Tehran Stock Exchange companies", Master's Thesis, University of Tehran Arak Science and Research.

    Shabahang, R., 1387, "Accounting Theory", Volume 1, Accounting and Auditing Specialized Research Center.

    Qaemi, M. et al., 1382, "Effect of profit smoothing on stock returns of companies listed on the Tehran Stock Exchange", Journal of Accounting and Auditing, Faculty of Management, University of Tehran. Year 10, No. 33. 150-131.

    Ghorbani, A., 2015, "Investigating the relationship between profit and cash flows and company value in the framework of the company's life cycle", Master's thesis, Islamic Azad University of Mashhad Branch.

    Karmi, G., Omrani, H., 2016, "The effect of the company's life cycle and conservatism on company value", Journal of Accounting and Auditing, Faculty of Management, University of Tehran, 59:96-79.

    Namdar, S., 1389, "Investigating the relationship between information asymmetry and ownership concentration with profit management in companies listed on the Tehran Stock Exchange", Master's thesis, Arak University of Science and Research.

    Noroosh, A., and Ali Ebrahimi Kardler, 1384, "Investigating and explaining the relationship between the composition of shareholders with information asymmetry and the usefulness of performance accounting criteria", Journal of Reviews Accounting and Auditing, Faculty of Management, University of Tehran, No. 42. Vakilifard, H., Rostami, V., 1389, "Analysis of the scope of the information asymmetry gap between professional members, providers and users of accounting information based on the qualitative characteristics of accounting information and financial reporting", Journal of Management Accounting, 6: 25-39.

    Raymond, P. Novo, translated by Ali Jahankhani and Ali Parsaian, 1376, "Financial Management", Samt Publications.

    Hejazi, R., Qitasi, R., 1390, "Profit Smoothing and Information Uncertainty", Journal of Accounting and Auditing, Faculty of Management, Tehran University, Year 13, No. 63. 78.

    Ahmadpour, A., Adili, M., 1392, "Investigating the relationship between information asymmetry and real profit management", Journal Financial Accounting Research, No. 18. 11.

     

     

     

    Latin sources:

    Akerlof, G., Spence, M., Stiglitz, J., (1970), "Markets with Asymmetric information", At URL: http://www. Nobelprize.org\ Economist.

    Anthony, J.H., Ramesh, K., (1992), “Association between Accounting PerformanceMeasures and Stock Prices a test of the life cycle hypothesis”, Journal of Accounting and Economics, 15: 203-27.

    Balk, E., (1998), “Life – Cycle Impacts on the Incremental Relevance of Earning and Cash Flow Measures”, Journal of Financial Statement Analysis Fall, pp. 40-56.

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