Real Activities Earnings Management And Credit Ratings

Abstract

The purpose of this research is to examine the relationship between real activities earnings management and credit ratings in a sample of 76 firms listed in Tehran stock exchange during 2008 to 2014. Considering the absence of international credit rating agencies in Iranian financial market, this paper firstly calculates credit ratings of selected firms using the emerging market score (EMS) model. Then it applies a multivariate regression model in which dependent variable is credit rating and independent variables are abnormal cash flows from operations, abnormal production costs and abnormal discretionary expenditures. This study which analyzes observational data, is an "applied" and "descriptive, post events and causal comparative" research from objective and data collecting method viewpoints, respectively. Results suggest that there is no significant relationship between abnormal cash flows from operations and credit rating, but abnormal production costs and abnormal discretionary expenditures have significant negative relation with credit ratings of the firms.

Keywords

• Credit Rating
• EMS Model
• Real Activities Earnings Management
• Abnormal Discretionary Expenditures
• Tehran Stock Exchange