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Investigating the relationship between managers' compensation and profit characteristics based on accounting

Number of pages: 173 File Format: word File Code: 32372
Year: 2010 University Degree: Master's degree Category: Librarianship
Tags/Keywords: Accrual items - Basis of accounting - Capital market - Financial statements - Financial variables - Management bonus - Managers' bonus - profit - Profit smoothing - Reward plan
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  • Summary of Investigating the relationship between managers' compensation and profit characteristics based on accounting

    Dissertation for Master's Degree

    Major: Accounting

    Abstract:

    According to agency theory, an organization is a set of contracts. The existence of a business unit is based on its concluded contracts. These contracts can be written or unwritten.  One of the most important of these contracts is the contract or bonus plan between the major shareholders and company managers. The agency relationship is a contract based on which the employer or owner appoints a representative or agent on his behalf and delegates decision-making authority to him. The subject of agency theory is the study of aggression between the employer and the agent. This conflict comes from the difference in their goals. In the agency relationship, it is assumed that each party tries to maximize their interests. The assumption that there is a conflict of interests between the owner and the representative or agent causes each of them to try to optimize and maximize their own interests. During this research, the relationship between the features of profit based on accounting and the remuneration of the board of directors was investigated. The research period of 5 years and from 1382 to 1386 was selected and tested with SPSS software and analyzed with the help of descriptive and inferential statistics such as correlation analysis. The results obtained in this research indicate a positive and direct relationship between the remuneration of the board of directors and profit characteristics based on accounting, including profit stability, profit non-smoothing and profit predictability. It was also found that there is no relationship between managers' bonuses and the quality of accruals in the Iranian capital market.

    Introduction:

    In today's investment world, decision-making is perhaps the most important part of the investment process during which Those investors need to make the most optimal decisions in order to maximize their benefits and wealth. In this connection, the most important factor in the decision-making process is information. Information can have a significant impact on the decision-making process. Because it causes different people to make different decisions. In the stock market, investment decisions are also influenced by information. Securities market theorists consider financial reporting as the most important source of information for investors. For this reason, one of the purposes of accounting and preparation of financial statements is to provide information in order to facilitate decision-making. Users of financial statements to make economic decisions, often want to evaluate the duty of stewardship or management accountability. These decisions include things like selling or maintaining investment in the business unit and re-electing or replacing managers. In order to compensate the creativity and initiatives of the management in finding and applying newer and better working procedures and methods, the organization often rewards the management. Rewards are often given for performing tasks at a level above normal work standards. Reward plans based on accounting profit figures along with other factors such as job security, job level, and company size, which has a direct relationship with management's well-being; It is directly or indirectly related to the high profitability of the company. It is assumed that managers seek to increase welfare through increasing profitability.

    In short, it can be said that managers know about the reward plan and how to evaluate their performance by shareholders, and according to this, they tend to manipulate profits in order to receive rewards. If the management bonus is less than the desired level, the management will transfer part of the profit of the future years to the current period, and in some cases, in line with the mentioned goal, the management may transfer the profit of the current years to the future periods.

    Researchers have investigated the relationship between the managers' bonuses with financial and non-financial variables in various researches, but in Iran, little research has been done on the managers' bonuses.The present research investigates the relationship between managers' compensation and profit characteristics based on accounting, including profit stability, quality of accruals, profit predictability and profit non-smoothing.

    Introduction

    Almost all external users are trying to predict the profit in several future periods with the help of reported financial information. Therefore, investors estimate their expected returns using financial information of companies. In addition, compared to other performance indicators (such as cash profit, cash flows, and profit changes), investors rely more on information related to profit, hence the reported profit is one of the criteria for determining the return expected by investors (Kumar, 1993, p. 23-1)[1].

    In order for the reported profit to be able to help users and investors in evaluating the performance and profitability of a company By relying on the profit information, they estimate their expected return, providing the information should be in a way that makes it possible to evaluate the past performance and be effective in measuring the profitability and predicting the future activities. Therefore, in addition to the fact that the reported profit figure is important for investors and has an impact on their decisions, the qualitative features of profit are also one of the dimensions of profit information of special interest to investors (Kordestani, 2013, p. 3) 2.

    One ??of the goals of financial statements is to reflect the results of their management's stewardship or accountability for the resources that are available to them. Users of financial statements to make economic decisions, often want to evaluate the duty of stewardship or management accountability. Said decisions include cases such as selling or maintaining investment in a business unit and re-electing or replacing managers (Khajovi, 2004, p. 38)3. In the first chapter, after stating the research problem, we examine the history of the research subject; Then we define the topic of the research and continue to express the importance and necessity of the research. We also express the research objectives in the form of general and special objectives. The theoretical framework of the research, which was the main basis of the research question and topic, is given in this chapter, and in the following, the research hypotheses and analytical model are also mentioned. agency or representation theory, the organization is the collection of contracts. The existence of a commercial unit was on the basis of concluding contracts. These contracts can be in the form of written and recorded or in the form of non-written. One of the important contracts is the contract or the design of reward between important shareholders and company's directors. The agency's relationship is the contract that on the basis of this employer or owner appoints deputy or agent on behalf of himself and gives over the authority of decision making to him. The topic of agency theory is the study of aggression (attack) between employer and agent. This contrast (opposition) results from differing these purposes. In the agency's relationship suppose that each one of the parties try to maximize their own profits. The assumption of the existence of profit's contrast between employer or owner and deputy or agent cause to try each one to optimize and maximize own's profits. Ther fore in this research we investigate the relationship between the properties of profit on the basis of accounting and the reward of board director. The timing age of research 5 years and select from 1382 to 1386 and analyze the test of hypotheses with spss software and with the help of descriptive and infering statistics such as the analysis of relationship. The result gained in this research indicates the positive and direct relationship between the reward of board director and properties of profit on the basis of accounting such as profit's stability, accuracy of profit and profit's predictability. Also characterze that there is of warranted items in Iran's stock.exchange(market).

  • Contents & References of Investigating the relationship between managers' compensation and profit characteristics based on accounting

    List:

    Abstract: 1

    Introduction: 2

    Chapter One: General Research

    1-1 Introduction. 4

    2-1 study history. 5

    3-1 statement of the problem. 6

    4-1 The theoretical framework of the research. 7

    5-1 research hypotheses. 7

    6-1 Importance and necessity of research. 8

    7-1 research objectives. 9

    8-1 study limits. 9

    1-8-1 The territory of the place of research. 9

    2-8-1 Time domain of research. 9

    3-8-1 Subject area of ??research. 9

    9-1 Definition of keywords and terms. 10

    Chapter Two: Review of Research Literature

    1-2 Introduction. 12

    2-2-quality of profit. 13

    1-2-2-The concept of profit from the accounting point of view. 13

    2-2-2-economic concept of profit. 14

    3-2-2-Emergence of profit quality theory. 15

    4-2-2-the concept of profit quality. 16

    5-2-2-Profit quality measurement criteria. 18

    3-2-theoretical foundations related to profit management. 19

    1-3-2-hypothesis of reward plan. 23

    2-3-2-Debt contract hypothesis. 24

    3-3-2-Political cost hypothesis. 25

    4-3-2-Agency theory 27

    5-3-2-types of contracts and agency theory. 30

    1-5-3-2-Contract based on behavior or time 31

    2-5-3-2-Contract based on result or stimulus 32

    4-2-Profit smoothing. 33

    1-4-2-Profit smoothing incentives. 35

    2-4-2 dimensions of profit smoothing. 37

    3-4-2-Profit smoothing methods. 38

    1-3-4-2- Setting the transaction time. 39

    2-3-4-2-cost sharing methods. 39

    4-4-2-types of profit smoothing. 39

    5-2- profit management measurement models. 42

    1-5-2-optional accrual item sum model. 42

    2-5-2-single accruals model 46

    3-5-2-total accruals model 47

    4-5-2-distributive model 48

    6-2-assets return rate. 49

    1-6-2-Financial analysis. 49

    2-6-2-Classification of criteria for evaluating the financial performance of companies: 50

    1-2-6-2-Accounting criteria: 50

    2-2-6-2-Economic criteria: 51

    3-6-2-Definition of rate of return on assets: 51

    4-6-2-Importance of return on assets: 52

    5-6-2-use cases of ROA. 52

    7-2-The background of the conducted research. 53

    1-7-2- Foreign researches. 53

    Chapter 3: Research Implementation Method

    1-3 Introduction. 60

    2-3 research methods. 60

    3-3 study population and statistical sample. 61

    4-3 Information collection methods. 62

    3-5 research model and method of measuring research variables: 62

    1-5-3 dependent variable. 62

    2-5-3 independent variables. 62

    6-3 information analysis method. 66

    1-6-3 Pearson correlation analysis and simple linear regression. 66

    Chapter Four: Data Analysis

    1-4 Introduction. 73

    2-4 Descriptive indices of variables. 73

    3-4 method of testing research hypotheses. 76

    4-4 Analysis of research hypotheses. 76

    1-4-4 Checking the assumption of normality of the variables: 77

    2-4-4 The summary of the analyzes separately for each hypothesis is described as follows 78

    1-2-4-4 Analysis of the test of the first main hypothesis. 78

    2-2-4-4 Analysis and test of the first sub-hypothesis. 78

    3-2-4-4-Analysis of the second sub-hypothesis test. 80

    4-2-4-4-Analysis of the third sub-hypothesis test. 82

    5-2-4-4-Analysis of the fourth sub-hypothesis test. 84

    6-2-4-4 Analysis of the second main hypothesis test. 87

    7-2-4-4 Analysis of the third main hypothesis test. 89

    8-2-4-4 Analysis of the fourth main hypothesis test. 91

    9-2-4-4 Analysis of the fifth main hypothesis test. 92

    Chapter Five: Conclusion and Suggestions

    5-1 Introduction. 98

    2-5 Evaluation and explanation of the results of hypothesis testing according to the conditions of the variables. 99

    1-2-5 Results of the first main hypothesis. 99

    2-2-5 Results of the first sub-hypothesis. 99

    3-2-5 Results of the second sub-hypothesis. 99

    4-2-5 Results of the third sub-hypothesis. 100

    5-2-5 Results of the fourth sub-hypothesis. 100

    6-2-5 Results of the second main hypothesis. 101

    7-2-5 The results of the third main hypothesis. 101

    8-2-5 Results of the fourth main hypothesis. 102

    9-2-5 The results of the fifth main hypothesis. 102

    3-5 general conclusions of the research. 103

    4-5 suggestions. 103

    1-4-5 suggestions based on hypothesis findings103

    2-4-5 suggestions for future research. 104

    5-5 research limitations. 104

    Appendices

    Table related to the names of statistical sample companies. 107

    Sources and reference

    Persian sources: 110

    Latin sources: 112

    Internet sources: 115

    English summary: 116

    Source:

    Persian sources:

    Azer, A. and Mansour Momani, 2015, "Statistics and its application in management", Semit Publications, second volume, 9th edition, Tehran.

    Balkouni, A., translated by Ali Parsaian, 2015, "Accounting theories", Cultural Research Publications, first edition, pages 89 to 95,.

    Bahar Moghadam, M., 2015, "Reviewing the effect of debt contracts, political costs, reward plans and ownership and profit management in companies admitted to the Tehran Stock Exchange", Accounting and Auditing Quarterly, No. 36, pages 47 to 63.

    Bolo, A., and Seyed Ali Hosni, 1386, "Profit management and its measurement: a theoretical approach", Journal of Certified Public Accountants, Society of Certified Accountants of Iran, 4th year, No. 12, pages 72 to 88.

    Parsaian 1384, "Accounting theory", written by Ahmad Riahi Belkowi, Tehran: Cultural Research Office.

    Thaqafi, A., and Esfandiar Malekian, 1377, "Comprehensiveness of annual reports and financial characteristics of companies admitted to the Tehran Stock Exchange Organization", Accounting and Auditing Reviews, issue 22, 1377, pages 22 and 23.

    Hass Yeganeh, Y., 2015, "The impact of culture on the corporate governance system", Accountant Magazine, Iran Certified Accountant Association, No. 172, pages 19 to 21.

    Ghekrit, H., and Ali Homayoun, 2015, "Investigation of the relationship between the quality of accruals and profit in companies listed on the Tehran Stock Exchange", Master's Thesis, Islamic Azad University of Mashhad Branch.

    Khaki, G.R., 1387, "Research method with an approach to writing a thesis", Reklam Publications, 8th edition.

    Delavar, A., 1374, "Theoretical and practical foundations of research in humanities and social sciences", Rushd Tehran Publications.

    Rahmanai Roudpashti, F. 2016, "Strategic Financial Management", MCG Publications.

    Sarmed, Z.  and Ali Bazargan, and Elaha Hijazi, 2013, "Research Methodology in Behavioral Sciences", Tehran, Aghaz Publication.

    Shabahang, R., 2013, "Accounting Theory", volume one of the publications of the Specialized Research Center for Accounting and Auditing, Audit Organization.

    Zarif Fard, A., 2014, "Identification and Analysis of Factors Related to the Evaluation of Profit Quality of Iranian Economic Enterprises", Doctoral Dissertation, University of Tehran, page 20 to 102.

    Kurdestani, G.R., 2013, "Investigation and explanation of the relationship between profit quality and market reaction to cash profit changes", Accounting and Auditing Reviews, No. 37, 51-78

    Mashaikh, Sh. and Maryam Esmaili, 2015, "Investigation of the relationship between profit quality and some aspects of strategic principles in companies listed on the Tehran Stock Exchange", Accounting Reviews Quarterly and Audit, No. 45, pages 25 to 44.

    Namazi, M., 1383, "Empirical investigation of important structures in determining contracts, indicators and reward parameters for CEOs of companies", Accounting and Auditing Reviews, No. 36.

    Namazi, M., 1381, "Reviewing the applications of agency theory in management accounting", Shiraz Journal of Social Sciences, No. 28, p. 15.

     

    Latin sources:

     

    Core, J.E., and D.F. Larcker, (2002), "Performance Consequences of Mandatory Increases in Executive Stock Ownership". Journal of Financial Economics. 64(3): 317-340.

    Core, J.E., R.W. Holthausen, and D.F. Larcker, (1999), "Corporate Governance, the Executive Office Compensation, and Firm Performance" Journal of Financial Economics, 51(3): 371-406.

    Dechow, P.M., M.R. Huson, and R.G. Sloan, (1994), "The Effect of Restructuring Charges on Executives' Cash Compensation" Accounting Review 69 (1):138-156.

    E. Comiskey and Charles W. Mulford, (2008), "Negative Goodwill: Issues of Financial Reporting and Analysis Under Current and Proposed Guidelines", Journal of Applied Research in Accounting and Finance (JARAF), Vol. 3, No. 1, pp. 33-42.

    Fama, E. F, (1970), "Efficient capital markets: a review of theory and empirical work". Journal of Finance, 25, 383-417.

    Fridson, M. and Alvarez, F, (2002), "Financial Statement Analysis", A Practitioner's Guide.

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