Assessment of Methods Used by Managers’ Authorities in Different Stages of Financial Distress for Firms listed in Tehran Stock Exchange

Abstract

This study aims to investigate how managers’ authorities be used at three events of the possibility of: distress is low, financial distress and, distress is high, in the companies listed in the Tehran Stock Exchange, TSE,. To test the hypotheses, information from 855 firm-years in a five year period 1386 to 1390 were classified into three groups, using the predict bankruptcy model of Altman. In this model, manipulation of accruals was measured by Kaznyk model (1999). The results of estimation and hypotheses tests from unbalanced panel data regression model suggest that there exists efficient use of earnings management in the companies in the TSE. In other words, the TSE managers in different states of distress, to illustrate a better situation of financial state, manipulate accounting profits declining, using discretionary accruals. Also, at the event of increasing the possibility of financial distress, the level of manipulation of accounting earnings by managers increases.

Keywords

• discretionary accruals
• financial distress
• low financial distress
• high financial distress
• earnings management