The impact of business strategy and annual report readability on financial reporting quality

Farzaneh

2023

IJLMA

Self Cite

Purpose This study aims to explore the moderating role of institutional ownership in the impact of auditor industry specialization and the cost of equity on earnings management in Tehran Stock Exchange. Design/methodology/approach A total number of 198 firms were assessed in this study from 2014 to 2021. In this study, both accrual earning management (AEM) and real earnings management (REM) have been included. The industry-adjusted earnings price ratio and Gordon Growth Model were used for the cost of equity capital. In addition, auditor’s within-industry market share was used as a proxy for auditor industry specialization. Findings The results showed that institutional ownership positively moderates the impact of auditor industry specialization on AEM/REM. Furthermore, institutional ownership positively moderates the impact of cost of equity on AEM/REM. Hypothesis testing based on a robust regression and t + 1 test were also used for the results. Originality/value Previous studies have reported mixed results of this empirical question whether institutional ownership actually monitors managers and control earning management, considering the auditor industry specialization and the cost of equity. To the best of authors’ knowledge, this is a pioneering study to fill the existing gap. This study would not only benefit companies to manage financial and strategic decisions more efficiently but also help national and international society apply effective mechanisms to assist companies in decreasing earning management and increasing the firm performance, and try to push the market into a favorable direction.

Section: Methodsmentioning

confidence: 99%

Auditor industry specialization and cost of equity on earnings management: the moderating role of institutional ownership

Farzaneh

2023

IJLMA

Self Cite

“…The reason for choosing TSE is the availability and reliability of data. Furthermore, in Iran, the latest guidelines for auditing firms have been in use since nearly 2014 (Arianpoor and Sahoor, 2022). Therefore, to access more appropriate information, the beginning of the search period was set for 2014.…”

Section: Methodsmentioning

confidence: 99%

Nonfinancial sustainability reporting, management legitimate authority and enterprise value

Salehi

Daroudi

2023

SRJ

Self Cite

Purpose The purpose of this study is to assess the impact of nonfinancial sustainability reporting (NFSR) on enterprise value moderated by the management legitimate authority (MLA) for companies listed on the Tehran Stock Exchange. Design/methodology/approach To this aim, 190 firms were assessed during 2014–2019. This study used Arianpoor and Salehi’s indicators. The scoring method for NFSR, environmental sustainability reporting (ESR), social sustainability reporting (SSR) and governance sustainability reporting (GSR) was based on Zimon et al. Also, the CEO pay slice index was used to calculate the management’s legitimate authority. Tobin’s Q was used as a standard measure for the firm value, providing a suitable means of comparison. Findings The results revealed that NFSR affects enterprise value positively. In addition, ESR and SSR positively affect the enterprise value. However, GSR did not affect the enterprise value. MLA affects the relationship between NFSR/ESR/SSR/GSR and enterprise value, resulting from the effect of MLA on firm-related information quality and transparency. Practical implications Linking NFSR and management’s legitimate authority to firm value will enable managers to lead in helping firms enhance transparency and disclosure, improving their reporting standards and increasing the enterprise value. This, in turn, will ultimately result in better sustainability and governance practices. Social implications The results can help understand that analysts and investors somehow consider discussions related to the NFSR in decisions related to the company’s value, and positive market reactions to these practices’ disclosures can motivate firms to improve value and performance. Originality/value The majority of prior research in this field has focused on developing countries. An international perspective is critical, and this study helps draw a more contextualized picture of sustainability than before. In addition, the present research explored the management’s legitimate authority role, which is considered an innovative aspect.

“…AuditSIZE: the variable is indicative of audit firm size. In this paper, affiliated audit firms with official accounting associations are considered small auditing (small audit firms), so 0 will be assigned to them and the audit organization due to a large number of staff and longer history being considered large auditors and take 1 (Arianpoor & Sahoor, 2022).…”

Section: Methodsmentioning

confidence: 99%

The impact of narcissism, self-confidence and auditor’s characteristics on audit report readability

Salehi

Dalwai

2022

AGJSR

Self Cite

PurposeThe present study aims to assess the impact of narcissism, self-confidence and auditor's characteristics on audit report readability for companies listed on the Tehran Stock Exchange.Design/methodology/approachThe study’s statistical population comprises firms listed on the Tehran Stock Exchange. The present research used a systematic elimination method, and 1,162 firm-year observations were obtained for seven years from 2012 to 2018. Three variables including auditor tenure, audit fee and audit specialization are used for measuring auditing features. The Fog index is used as a proxy for measuring audit report readability. In addition, in this paper, four regressions, including fixed effects, random effects, pooled and T+1, are used to estimate reliable coefficients.FindingsThe findings show a negative and significant relationship between auditor’s characteristics (tenure, fee and specialization) and audit report readability. Moreover, the variables of the auditor’s narcissism, self-confidence and mandatory auditor change have a positive and significant association with audit report readability. This study lends support to the theories of personality disorder and behavioral decision.Originality/valueSince narcissism and self-confidence are two characteristics that shape an individual’s character and personality, some involved behavioral factors in auditors’ characteristics contribute to their decisions. The effects of these should be detected to enhance the decision-making process. The said factors significantly impact audit report readability. Hence, this paper attempts to assess the effect of the said factors on audit report readability.