Objective: This research analyzed the impact of economic complexity index & economic growth and interaction between them on managers’ incentives to manage earnings in financial reporting using discretionary accruals.
Methods: Earnings management is assessed using discretionary Accruals. Also, economic complexity index and economic growth in gross domestic production variation are considered as macro economic criteria under environment uncertainty. Research population includes 166 firms listed in Tehran Securities & Exchange over the period March 2012 till March 2019. Hypotheses analyzed through multivariate regression models using panel data with fixed effect, generalized least squares and autoregression method.
Results: Findings illustrated that manager incentives for using discretionary accruals to manage earnings is a direct function of economic complexity index, but an inverse function of economic growth in gross domestic production; In addition, supplementary evidences indicated that economic growth in gross domestic production caused to weaken the relationship between economic complexity index and earnings management.
Conclusion: In fact, more economic complexity index based on production diversity & ubiquity caused to more earnings management; however, more economic growth based on gross domestic production caused to less earnings management. As a whole, results showed that macro economic criteria under environment uncertainty are effective factors on earnings management in firms’ financial reporting. Therefore, these findings can improve to assesse the role of economic challenges and its consequences on managers’ policies and decisions.