Accounting and Auditing Studies

Accounting and Auditing Studies

Investigating the Relation between financial distress risk and Fraudulent Financial reporting with aggressiveness financial reporting in Iran capital market: Experimental testing of financial turmoil theory and major laundering

Articles in Press

Document Type : Original Article

Authors
Ali Molaiy Eial Zoleh 1
kaveh parandin 2
yaser Shirzadi 1
1 Department of Accounting, Payame Noor University
2 Department of Accounting, Payam Noor University
10.22034/iaas.2026.544972.1732
Abstract
Companies facing financial distress engage in earnings manipulation and aggressive financial reporting to avoid bankruptcy costs, and they employ more accrual items than other firms. Therefore, the aim of this study is to examine the relationship between financial distress risk and aggressive financial reporting, with emphasis on firm size, among companies listed on the Tehran Stock Exchange. To test the hypotheses, 128 listed companies on the Tehran Stock Exchange were examined over the years 2017 to 2024. To measure financial distress risk, the Altman Z-score model was used; firm size was proxied by the natural logarithm of total assets, and aggressive financial reporting was measured using the Kothari model. This study employed correlation analyses and multivariate regression with a panel data approach and generalized least squares (GLS) estimation. The results show that the relationship between financial distress risk and aggressive financial reporting is positive and significant, while firm size has a negative and significant relationship with aggressive financial reporting. Moreover, firm size strengthens the direct relationship between financial distress risk and aggressive financial reporting. Additionally, the results of a sensitivity analysis indicate that using an alternative measure to assess aggressive financial reporting does not affect the main findings, and the results are robust. The findings could assist policymakers in formulating stricter regulations that enhance public confidence in the reliability of financial reporting.
Keywords
financial distress risk
fraudulent financial reporting
aggressiveness financial reporting
Subjects
Accounting and Auditing Studies

Articles in Press, Accepted Manuscript
Available Online from 22 June 2026