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The Effect of Surplus Free Cash Flow and Audit Quality on Earnings Management

Author

Listed:
  • Saeid Nouri

    (Department of Accounting, Islamic Azad University, Qazvin Branch, Qazvin, Iran,)

  • Behnam Gilaninia

    (Department of Accounting, Islamic Azad University, Rudsar Branch, Rudsar, Iran)

Abstract

One of the most important management tool is the abuse of free cash flows in those companies with low growth opportunities, companies in which there are lots of free cash flows and moreover there are not much investment opportunities and the corporate governance structure and also the audit quality (AQ) are not appropriate, rate of using free cash flows increases in order to manage the earnings. So the goal of present investigation is to check the excess effect of free cash flows and AQ on the earnings management. The period of the present survey is from 2010 to 2014, in which 102 companies have been checked. In this research to test the investigation's hypothesis, multiple linear regression model and panel data have been used. The analysis results of the first hypothesis free cash flow have positive and significant effect on earnings management. The analysis results of the second hypothesis AQ have negative and significant effect on the earnings management. The third hypothesis finding, in this research shows that the AQ has a significant on both surplus free cash flow and earnings management.

Suggested Citation

  • Saeid Nouri & Behnam Gilaninia, 2017. "The Effect of Surplus Free Cash Flow and Audit Quality on Earnings Management," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 270-275.
    • Handle: RePEc:eco:journ1:2017-03-35
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    References listed on IDEAS

    as
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    5. Maria Tsipouridou & Charalambos Spathis, 2014. "Audit opinion and earnings management: Evidence from Greece," Accounting Forum, Taylor & Francis Journals, vol. 38(1), pages 38-54, March.
    6. DeAngelo, Linda Elizabeth, 1981. "Auditor independence, `low balling', and disclosure regulation," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 113-127, August.
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    Cited by:

    1. Ahmad A. Toumeh & Sofri Yahya & Azlan Amran, 2023. "Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee," Global Business Review, International Management Institute, vol. 24(6), pages 1353-1382, December.

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    More about this item

    Keywords

    Free Cash Flow; Surplus Free Cash Flow; Earnings Management; Audit Quality;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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