The effect of restatements of financial statement on earnings management: Evidence from Tehran Stock Exchange (TSE)

Abstract

    This study examines the relationship between financial restatements and earnings management. The research sample consisted of 339 companies listed on the Tehran Stock Exchange (TSE) from 2010 to 2017. The modified Jones model (1995) and Kasznik model (1999) are used to measure accruals earnings management and Roychowdhury’s model (2006) is employed to measure real earnings management. The results suggest that there is a significant association between restatement and accruals/real earnings management. Further, a significant difference is observed between earnings management in the restatement period and the earnings management before restatement period in terms of the amount of real earnings management. However, there is no significant difference in the absolute value of earnings management. Moreover, there is a positive and significant relationship between income-decreasing restatement and the relative amount of accruals earnings management, but this relationship is negative and significant in terms of absolute value of earnings management and the amount of income-decreasing restatement.