Relationship between Earnings Management and Information Asymmetry in the Condition of Environmental Uncertainty

This study investigates the relationship between earnings management and information asymmetry under the condition of environmental uncertainty. In this study, to quantify earnings management, the models based on discretionary accruals (from Dechow et al, 2002 and Kothari et al, 2005) were used. Standard deviation of the stock price and bid ask spread models were also used for information asymmetry. Three hypotheses were formulated and tested. The data of 101 firms (505 firm/years) from the Tehran Stock Exchange in the period of 1387 to 1391 was collected and tested, using multi-variable regression panel model. The empirical findings indicate that all the three hypotheses are confirmed. That is, earnings management and environmental uncertainty variables have significant relationships with information asymmetry, and the both lead to increasing information asymmetry. In addition, findings show that environmental uncertainty results in weakening the relationship between earnings management and information asymmetry.

Abstract licence: CC BY-NC

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