Evaluating the Effect of Corporate Governance and Petroleum and Petrochemical Industry on Employee Differential and Free Cash Flow Relationship with Earnings Management

Alimoradi, Abbas; Zamani, Farzad

doi:10.22034/iaas.2019.99061

Evaluating the Effect of Corporate Governance and Petroleum and Petrochemical Industry on Employee Differential and Free Cash Flow Relationship with Earnings Management

Document Type : Original Article

Authors

Abbas Alimoradi ¹

Farzad Zamani ²

¹ Assistant professor, The Petroleum University of Technology, Iran

² Master in Finance, Azad University, branch South Tehran, Iran

10.22034/iaas.2019.99061

Abstract

In this paper, we evaluate the effect of petroleum and petrochemical industry and corporate governance on the relationship between employee differential and free cash flow with earnings management. We test the research hypotheses by applying regression and correlation techniques during 2012-2016 for companies listed in Tehran Stock Exchange. Findings show that the independence of the board has a decreasing effect on the direct relationship between employee differential and earnings management. Also, the institutional ownership has a decreasing effect on the relationship between employee differential and free cash flow with earnings management. On the other hand, Audit quality and company’s activity in petroleum and petrochemical industry are not significant on the relationship between employee differential and free cash flow with earnings management. It is necessary for investors to consider institutional ownership and independence of the board as two effective variables in decision making.

Keywords

Independence of the Board

Institutional Ownership

Petroleum and Petrochemical Industry

Employee Differential

Panel Data

Earnings Management