تحقیقات مالی (Aug 2021)
The Impact of Stock Market and Business Cycles on the Behavior of Factors Affecting Favorable Financial Reporting using Audit report based Approach
Abstract
Objective: This study is implemented to identify the factors affecting favorable financial reporting and also to investigate the impact of business and stock market cycles on the behavior of these factors. Methods: The panel data model was used to test the assumptions of the research and the ratio of the sum of the absolute value of the effects of audit disagreement paragraphs over the absolute value of the net income was used to measure favorable financial reporting. The statistical sample of this research, after applying some restrictions, consists of 124 firms listed on the Tehran Stock Exchange from 2008 to 2017. Results: Research’s findings demonstrated that profitability and corporate governance quality are positively associated with favorable financial reporting; while managerial ability, audit size and firm age are not significantly associated with favorable financial reporting. The results of the Hodrick-Prescott filter showed there is no complete coincidence between boom and recession periods of business and stock market cycles during the research period. In the supplementary analysis of the research, based on the Paternoster test (1998) about the behavior of the above factors in the periods of the business and stock market cycles, audit size variable behavior influenced by the boom and recession periods of the business cycle and behavior of the profitability variable is influenced by the boom and recession periods of the stock market cycle. Conclusion: The results of this study emphasize the role and importance of establishing a high-quality corporate governance system in the company and supervise the organizations concerned about its requirements. Also, in this research, favorable financial reporting is measured from an independent audit view especially based on audit standard No. 700. Lack of relationship between some factors and favorable financial reporting, which is predicted as a reflection of the high level of quality in financial reporting, on one hand, and the lack of accordance of research results with some researches results, on the other hand, may result from the lack of full compatibility of two concepts of favorable financial reporting and financial reporting quality or difference in stated variable measurement.
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