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The Effect of Leverage and Liquidity Ratios on Earnings Management and Capital of Banks Listed on the Tehran Stock Exchange

Author

Listed:
  • Abdolkarim Moghaddam

    (Department of Management, Economics and Accounting, Payame noor University, Iran)

  • Narges Abbaspour

    (Department of Management, Economics and Accounting, Payame noor University, Iran)

Abstract

Banks, like all profit institutions seek their profitable growth and maximize their shareholders’ wealth, increased profitability of the banks on the one hand, increases the company's value and on the other hand, increases executives’ compensation and increases their tenure and because the same reason, bank managers have high motivation to increase profits through discretionary accruals. The capital structure also due to the relationship with credit risk and cost of capital is considered as one of important issues in the banks, so, the current research aimed to determine the e of leverage and liquidity ratios on earnings management and capital of banks listed on the Tehran Stock Exchange. In this research, financial information of 14 banks listed on the Tehran Stock Exchange during the period 2010 to 2015 have been studied and for performing this study, multivariate linear regression analysis using panel data has been used. The results show that financial and liquidity leverage has significant positive effect on earnings management of banks, therefore increasing the degree of financial leverage and by increasing bank liquidity, the possibility of using discretionary accruals and earnings management at banks increase. The results also showed that financial leverage has a significant negative effect on the bank's capital adequacy ratio and with increasing financial leverage bank capital adequacy ratio is reduced.

Suggested Citation

  • Abdolkarim Moghaddam & Narges Abbaspour, 2017. "The Effect of Leverage and Liquidity Ratios on Earnings Management and Capital of Banks Listed on the Tehran Stock Exchange," International Review of Management and Marketing, Econjournals, vol. 7(4), pages 99-107.
    • Handle: RePEc:eco:journ3:2017-04-14
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    Citations

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    Cited by:

    1. Abdul-Azeez Adeniyi Alao & Wasiu Abiodun Sanyaolu, 2020. "Effect of Leverage on the Profitability of Nigerian Consumer Goods Manufacturing Firms," Business & Management Compass, University of Economics Varna, issue 1, pages 5-25.
    2. MOHAMMED, Badamasi Idris & NWALA MAUREEN, Nneka & MOHAMMED, Jibril, 2023. "Impact of Liquidity Management on Capital Adequacy Ratio of Listed Deposit Money Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(12), pages 1762-1774, December.
    3. Tuğba KAYHAN & Temur KAYHAN & Engin YARBAŞI, 2019. "Profit management in the case of financial distress and global volatile market behaviour: Evidence from Borsa Istanbul Stock Exchange," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(620), A), pages 179-192, Autumn.
    4. Sunday Olugboyega KAJOLA & Adeniyi ALAO & Wasiu Abiodun SANYAOLU & Olalekan Jubril OJURONGBE, 2019. "Effect Of Liquidity And Leverage On Financial Performance Of Nigerian Listed Consumer Goods Firms," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 4(3), pages 91-102.

    More about this item

    Keywords

    Earnings Management; Discretionary Accruals; The Adequacy of Bank Capital; Financial and Liquidity Leverage of Banks;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G2 - Financial Economics - - Financial Institutions and Services

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