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In es iga ing he E ec o Capi al S uc u e and
G ow h Oppo uni ies on Ea nings Managemen
Mahmoud Noza pou 1
Depa men o Accoun ing, Pe sian Gul In e na ional B anch, Islamic Azad
Uni e si y, Kho amshah , I an
Hamid No ouzi
Depa men o Accoun ing, Pe sian Gul In e na ional B anch, Islamic Azad
Uni e si y, Kho amshah , I an
Abs ac
The main goal o his s udy is o in es iga e he e ec o capi al s uc u e
and g ow h oppo uni ies on ea nings managemen in companies accep ed in
Teh an secu i ies exchange du ing 2008 o 2013. Be o e da a analysis, Chow
es was applied o de e mine he app op ia e model o es ima e pa ame e s and
independen a iables e ec on dependen a iable. Then, esea ch hypo heses
we e es ed h ough pooled da a me hod. Resea ch esul s showed ha he e is
a signi ican ela ionship be ween capi al s uc u e index inancial le e age and
ea nings managemen . Also, esea ch showed ha he e is a nonlinea and
signi ican ela ionship be ween g ow h oppo uni ies and ea nings
managemen and g ow h oppo uni ies ha e a signi ican e ec on his
ela ionship.
Keywo ds: G ow h oppo uni ies, capi al s uc u e, ea nings managemen
Ci e his a icle: Noza pou , M., & No ouzi, H. (2015). In es iga ing he E ec o Capi al
S uc u e and G ow h Oppo uni ies on Ea nings Managemen . In e na ional Jou nal o
Managemen , Accoun ing and Economics, 2(6), 538-546.
In oduc ion
Business uni s’ manage s’ main goal is o maximize he p o i abili y and c ea e
g ow h oppo uni ies o company h ough sho - e m and long- e m in es men s.
In es men equi es inancial suppo ing. Financial suppo ing (capi al s uc u e) is
achie ed h ough equi y and loaning. Financial suppo is usually highly p e e able by
companies’ manage s because o ax economizing and i s lowe p ice han sha eholde s
expec ed e u n. To ge loans companies need o ha e desi able inancial s a emen s and
1 Co esponding au ho ’s email: Mahmoud_noza pou @yahoo.com
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539
ega ding he impo ance o hese s a emen s especially p o i and loss s a emen s in
decision making o ge loans and c edi s, companies’ manage s may display a desi able
s a us o companies’ p o i abili y o make c edi o s sa is ied. Manage s’ in e e ence in
and judgmen on inancial epo ing cause p o i abili y c ea ion and h ough
manipula ing inancial epo ing a ec sha eholde s and c edi o s deduc ion abou main
and economic pe o mance and conclusions based on accoun ing epo ing (Healy &
Wahlen, 1999).
Ea nings managemen occu s when manage s c ea e changings in o de o as ay
some o bene icia ies including sha eholde s, c edi o s, employees, in es o s, e c., abou
he company’s economic pe o mance o a ec ing he con ac s’ esul s dependen on
accoun ing igu es epo ing using hei judgmen s in exchange and inancial epo ing.
S a emen o he p oblem
Rega ding he impo ance o ea nings in inancial epo ing, manage s a e always
ying o manipula e he epo ed p o i amoun acco ding o speci ic objec i es hey
ollow. McNichelson (1988) eplaced ‘ea nings smoo hing’ wi h ‘ea nings
managemen ’ o he i s ime. Acco dingly, ea nings managemen was he ocus o
in e es s, because i can manipula e he company’s pe o mance and e lec he in ended
esul s (Bolkouei, 2000).
The i s ac which i s ela ionship wi h ea nings managemen is conside ed
ega ding i s ole in manage s’ oppo unis ic beha io s is inancial le e age. The esul s
o o me esea ch such as Diche and Skinne (2002) show ha high po en ial inancial
le e age causes inc easing ea nings managemen h ough using ea nings acc uals and
o he ea nings inc easing accoun ing op ions.
The e a e a lo o p obable easons o ea nings managemen . Fo example, i a
company epo s s able ea nings, sha eholde s a e mo e ce ain, ea nings managemen
has a desi able e ec on s ock alue and capi al cos , o sha eholde s ob ain mo e
in o ma ion o ea nings decla a ion (Lee e al, 2007).
Once a company sha eholde s assign he decision making ask on manage s,
managemen has some mo i a ions abou he ac i i ies o maximize he expec ed
in e es . E en i hese ac i i ies a e no acco ding o sha eholde s’ in e es s, ea nings
managemen occu s when manage s c ea e changings o as ay some bene icia ies abou
he company’s pe o mance o a ec he con ac s esul s dependen on epo ed
accoun ing igu es o imposing hei judgmen in inancial epo ing and exchanges
s uc u e (Rao & Dandale, 2008).
In cases ha business uni s need inancial suppo , inancial suppo e s use
companies’ inancial epo ing pa icula ly p o i and loss s a emen s o decision
making. Desi able capi al s uc u e c ea es g ow h oppo uni ies o he company and
imp o es company’s s a us. To achie e his goal, manage s manage ea nings o ge he
a en ion o inancial suppo e s showing company’s desi able s a us.
In ac , ea nings managemen is a ype o conscious ac wi h he goal o showing
company’s ea nings as no mal o achie e a a o able and in ended le el. Among
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540
mo i a ions causing ea nings managemen a ec ing s ock p ice, managemen sala y and
p o i s inc easing, and p e en ing om loan con ac s’ iola ion can be poin ed. Mos o
hese mo i a ions a e ela ed o u u e p o i s such as g a ui y, o u u e losses such as
s ock p ice d opping (Dupink, 2008).
Re iew o he li e a u e
In a esea ch, Sinaei and Rezaeian (2006) in es iga ed he e ec o ou ea u es o
size, p o i abili y, g ow h oppo uni ies, and angible asse s o he company as he mos
impo an in a-company pa ame e s ha a e e ec i e on companies’ capi al s uc u e.
Resul s o da a analysis showed ha he e was an in e se signi ican ela ionship
be ween p o i abili y, g ow h oppo uni ies, and angible asse s wi h inancial le e age,
bu his ela ionship was posi i e and signi ican be ween company size and inancial
le e age.
The esul s o Nou ash and Yazdani (2011) esea ch showed ha he e was a
signi ican nega i e ela ionship be ween inancial le e age and in es men . This
ela ionship is s onge in companies ha ing mo e g ow h oppo uni ies.
In es iga ing he ela ionship be ween hese ea u es be ween company and capi al
s uc u e, Yahyazadeh Fa e al (2011) concluded ha he e is a nega i e signi ican
ela ionship be ween g ow h oppo uni ies (ma ke alue a io o book alue) and capi al
s uc u e.
Se gio and Pauolo Macias (2010) in es iga ed he ela ionship be ween g ow h
oppo uni ies and deb in Po uguese companies. The esul s o hei s udy showed ha
his ela ionship is no linea . When companies ha e li le g ow h oppo uni ies, he
ela ionship be ween g ow h oppo uni ies and deb is posi i e. Also, he ela ionship
be ween g ow h oppo uni y and deb is a ec ed by complex aspec s in capi al s uc u e
decisions.
Da ough e al (1998) in es iga ed he ea nings managemen in Japanese companies.
In addi ion o deb hypo heses, hey concluded ha he e is a ela ionship be ween
poli ical cos s and g a ui y plans o owne ship s uc u e hypo heses and in e nal
inancial suppo by ea nings manipula ing, bu deb hypo hesis in Japanese companies
was no con i med.
In he ield o inancial le e age main inc easing e ec on ea nings managemen in
New Yo k S ock Exchange, Odabashian (2005) implemen ed a esea ch. The ob ained
esul s o his s udy showed ha main inc easing o deb s educes oppo unis ic
beha io s and also ea nings managemen in companies wi h ee cash lows.
Degeo ge e al (1999) in es iga ed “ea nings managemen o inc ease ea nings
h eshold” and de ined ea nings managemen as a ype o ea nings a i icial
manipula ion o some speci ic decisions. Acco ding o hei iews, he main mo i a ion
o ea nings managemen is o manage in es o s’ imagina ion abou he business uni .
In e na ional Jou nal o Managemen , Accoun ing and Economics
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541
Chang and Cown (2002) in es iga ed he owne ship s uc u e and unconsciously
ea nings in Ko ea, and ound ha Ko ean companies’ owne ship s uc u e by
in e e ence o a majo owne is dis inc i e in company’s managemen .
Hypo heses
H1: The e is a signi ican ela ionship be ween g ow h oppo uni y and ea nings
managemen .
H2: Companies wi h high inancial le e age ha e highe ea nings managemen .
Va iables
Dependen a iable
Disc e iona y acc uals a e conside ed as dependen a iables. To calcula e hese
acc uals he o al acc uals should be calcula ed using Jones balanced model.
AC =β0 + β1(1/TA -1) +β2(∆Sales - ∆AR ) + β3(PPE ) +
AC : acc uals sum (ea nings be o e unexpec ed acc uals minus ope a ional cash
lows) in yea
TA -1: sum o asse s in yea -1
∆Sales : sales changes in yea
∆AR : accoun s and ecei ables changes in yea
PPE : G oss amoun o p ope ies, machine y, and equipmen in yea
£ : o al eg ession e o , i is assumed ha hey a e c oss unco ela ed and ha e
no mal dis ibu ion wi h mean o ze o.
Non-disc e iona y acc uals a e calcula ed h ough ollowing equa ion:
And hen by sub ac ing non-disc e iona y acc uals om o al acc uals, i s
disc e iona y pa is calculable as ollowing:
DAI = TAI - NDAI
DA: disc e iona y acc uals
TA: o al acc uals
NDA: non-disc e iona y acc uals
1
3
1
2
1
1
1
A
PPE
A
ARSALES
A
NDA
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Independen a iables
G ow h: he i s independen is g ow h oppo uni y which is ob ained om he a io
o sha eholde s sala y ma ke alue sum and deb s book alue o he asse s book alue.
Second independen a iable incudes inancial le e age (LEV) which is he a io o
book alue o he whole deb s o whole asse s book alue.
Con ol a iables:
SFA: pu e sales a io o ixed asse s
P o : p o i abili y a iable ha is p o i be o e in e es s and axes
Size: company size is ob ained om asse s no mal loga i hm.
In his esea ch mul i- a iable eg ession has been applied as ollowing oo es he
hypo heses:
DAi =β0+β1GROWTHi + β2LEVi + β3SFAi + β4PROFi + β5SIZE i +
ɛ
i
Da a collec ion
Da a collec ion has been done i s using lib a y me hod. Resea ch heo e ical
ounda ions a e collec ed h ough books, Pe sian and English jou nals in lib a y me hod.
Then, da a collec ion was done using isual and s a is ical discs o Teh an secu i ies
exchange; Teh an secu i ies exchange o icial websi e, and o he ele an In e ne -based
si es, s ock accoun ing in o ma ion, and o he in o ma ion sou ces.
S a is ical popula ion and companies’ choosing
S a is ical popula ion o his esea ch includes all accep ed companies in Teh an
secu i ies exchange du ing 2008 o 2013. To choose he sample in his esea ch all
a ailable da a was used. Fi s ly, all companies could pa icipa e in sampling we e
chosen. Then, among all exis ed companies, companies did no ha e he ollowing
quali ica ions we e elimina ed and inally he emaining companies we e chosen o be
es ed:
1. In o de o ha e homogenous s a is ical popula ion in in es iga ed yea s, he
companies should ha e been accep ed in Teh an secu i ies exchange be o e 2008.
2. Based on inc easing compa abili y, companies’ iscal yea should be ended o
he las mon h.
3. S a is ical sample does no include in e media y inancial, in es ing, leasing,
banks, and insu ance companies.
4. Companies should no ha e changed ac i i ies o inancial pe iod du ing his
esea ch.
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5. In ended companies’ da a should be a ailable.
Finally, in es iga ed companies in his esea ch include 147 accep ed companies in
Teh an secu i ies exchange.
Hypo heses es ing me hod
Reg ession es ima e model is applied o es he hypo heses and he ob ained esul s
a e analyzed acco ding o s a is ical signi icance o insigni icance o coe icien s. To do
his, a e de e mining a me hod which shows he mos p ecise es ima ion, es ima ion
coe icien s o used eg ession model independen a iables a e es ed using - alue. To
do his es he gene al hypo hesis is used as ollowing:
H0: β=0
H1: β≠0
H0 means ha independen a iable coe icien is equal o ze o. In o he wo ds, he e
is no ela ionship be ween dependen and independen a iable. Also, H1 indica es he
ela ionship be ween dependen and independen a iables. He e, hypo heses a e es ed
a he e o le el o 0.05. I p- alue < 5%, co ela ion is con i med a ce ain y le el o
95%; o he wise, i is ejec ed. A e implemen ing - es , eg ession gene al signi icance
is speci ied using F-s a is ics (Fische es ). In o de o de ec he exis ence o
au oco ela ion o non-au oco ela ion be ween diso de s elemen s au oco ela ion and
Du bin-Wa son es ha e been applied.
Resul s
Desc ip i e s a is ics
As i is seen, esea ch a iables desc ip i e esul s a e shown in able 1.
Table 1: a iables desc ip i e esea ch
Va iables Mean Mode STD Max Min
Disc e iona y acc uals 1.5583
1.7654
3.7795
3.2516 -3.6871
G ow h oppo uni y 1.2827
0.8338
6.7172
17.1573
0.2152
Financial le e age 0.6257
0.6281
0.2512
3.0604 0.0964
Pu e sales a io o ixed asse s
0.4031
0.5295
1.3988
2.3567 0.0007
P o i abili y 4.3905
3.8673
0.2939
2.6317 -3.9759
Company size 5.8209
5.7662
0.6331
8.0560 4.2911
Hypo hesis es ing esul s
The esul s ob ained om Chow es indica e ha he esea ch is o pooled da a ype.
Now, he esea ch model es ima ion esul s wi h pooled da a me hod a e shown in able
2.
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Table 2: esea ch model es ima ion esul s
Va iable Pooled da a me hod
P ob - es coe icien
In e cep 0.0000
-6.8576 -0.7443
G ow h oppo uni y 0.0168
1.2360 - 0.2050 -
Financial le e age 0.0277
2.2056 0.9778
Pu e sales a io o ixed asse s
0.0310
2.1604 1.7256
P o i abili y 0.0000
13.3756
0.7150
Company size 0.0000
8.5844 0.1513
De e mining coe icien 0.3471
adjus ed coe icien 0.3428
DW es 2.1885
F 0.1389
F p obabili y 0.0000
Acco ding o model es ima ion esul s, i can be concluded ha esea ch model is
signi ican , because he e o le el o p obabili y ela ed o F is ze o and less han 5
pe cen . As a esul , e en a ce ain y le el o 99%, model signi icance is accep ed.
Also, ega ding he model Du bin-Wa son s a is ics shown in able 2, i can be
concluded ha esea ch model does no ha e au oco ela ion. Model adjus ed model is
0.34. This s a is ics shows ha abou 34% o changes a e desc ibed by independen
a iables. Rega ding he model s a is ics con i ma ion, esea ch hypo heses a e
in es iga ed.
Fi s hypo hesis
H1: The e is a signi icance ela ionship be ween g ow h oppo uni y and ea nings
managemen .
Wi h espec o p esen ed esul s in able 2, p obabili y o H0 s a ing he e ec o
g ow h oppo uni y on ea nings managemen is equal o 0.0168 which is less han 0.05.
Thus, H0 is no ejec ed a e o le el o 0.05. Acco dingly, g ow h oppo uni y has a
posi i e in e se e ec on ea nings managemen .
Second hypo hesis
H2: Companies wi h high inancial le e age ha e highe ea nings managemen .
Second hypo hesis shows he p obabili y o inancial le e age a iable which has a
posi i e signi ican e ec on ea nings managemen a e o le el o 0.05. Resul s
indica e ha ea nings managemen inc eases wi h inancial le e age inc easing. Resul s
o second hypo hesis es ing a e p o ided in able 2.
Conclusions
The e ec o capi al s uc u e and g ow h oppo uni ies on ea nings managemen in
accep ed companies in Teh an secu i ies exchange was in es iga ed in his esea ch.
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Inc easing inancial le e age and using deb s and ge ing loans ins ead o equi y do no
educe ea nings managemen , bu inc ease manage s’ oppo unis ic beha io o manage
ea nings. Reducing manage s’’ oppo unis ic beha io does no o e come ea nings
managemen need in o de o keep deb con ac condi ions and ea nings managemen
does no dec ease. The esul o his s udy is consis en wi h Jelnick (2007). G ow h
oppo uni ies and low a e o in es men guide manage s owa ds dange ous
in es men s which cause ea nings luc ua ion and using di e en me hods o manage
ea nings. Thus, in companies ha ing high inancial le e age he isk o bank up cy is
high and o show his issue desi able manage s manage ea nings. Also, in companies
wi h no o low g ow h oppo uni ies manage s manage ea nings o g ab in es o s’
a en ion.
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