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Paper Information

Journal:   JOURNAL OF ACCOUNTING KNOWLEDGE   SUMMER 2012 , Volume 3 , Number 9; Page(s) 143 To 166.
 
Paper: 

THE IMPACT OF EQUITY OVERVALUATION ON EARNINGS MANAGEMENT

 
 
Author(s):  MOUSAVI SHIRI MAHMOUD*, KHALAT BARI HASSAN, VAGHFI SAYYED HESAM
 
* PAYAME NOOR UNIVERSITY
 
Abstract: 

Researches show that if market value of stock in a firm exceeds its true value, this overvaluation affects the managerial behavior and corporation actions. This research provides evidence on the role of equity overvaluation on income-increasing earnings management in the future. For this purpose the impact of equity overvaluation on subsequent income-increasing earnings management is examined, using collection of financial data in the years 2004 to 2008 for about 60 listed companies in Tehran Stock Exchange, and using correlation analysis, regression analysis and mean-difference testing methods. Results of the research show that equity overvaluation has positive and significant relationship with subsequent income-increasing earnings management. Indeed in the studied companies in Tehran Stock Exchange, when stock would overvalue by the market, firms management tend to support valuation errors to access benefit of stock price rising through discretionary accruals manipulation.

 
Keyword(s): OVERVALUED EQUITY, EARNINGS MANAGEMENT, DISCRETIONARY ACCRUALS, VALUATION ERRORS
 
References: 
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