Abstract
A manager’s personality and psychological attributes may influence his or her performance, thereby affecting the quality of financial reporting by companies. On the one hand, today there is an increasing requirement for protecting the interests of investors as providers of investment and the most important group of accounting information and financial report users. The development of audit committees is among the mechanisms expected to be effective in protecting the interests of different groups of accounting information and financial report users. In order to act effectively, an audit committee must be independent. Therefore, the present study aims to examine the role played by the independence of audit committee members as a quality of an audit committee to identify how it may moderate the relationship between managers' narcissism and real earnings management in the firms listed in the Tehran Stock Exchange (TSE) using a statistical sample consisting of 642 observations (year-firm) over the period 2013-2018. The findings obtained through hypothesis testing using statistical analysis of panel data suggest that independence of audit committee members does not moderate the relationship between CEO's narcissism and real earnings management through abnormal cash flow, real earnings management through abnormal production, and real earnings management through abnormal discretionary expenses. Thus, the independence of audit committee members as a moderator cannot moderate the relationship between CEO's narcissism and real earnings management
Highlights
CEOs play a key role in intra-organizational leadership and direction while presenting the organization to the outside world
The present study aims to examine the role played by the independence of audit committee members as a quality of an audit committee to identify how it may moderate the relationship between managers' narcissism and real earnings management in the firms listed in the Tehran Stock Exchange (TSE) using a statistical sample consisting of 642 observations over the period 2013-2018
The evidence obtained in the study showed that real earnings management (REM) through abnormal cash flow, REM through abnormal discretionary expenses, CEO narcissism, tenure, audit committee independence, and market-book value ratio were positively skewed while other study variables were negatively skewed
Summary
CEOs play a key role in intra-organizational leadership and direction while presenting the organization to the outside world. An audit committee will ensure that a manager moves towards the achievement of corporate goals while making his or her best to secure the company's interests, thereby enhancing the firm's performance This will in turn lead to improved quality of financial reports, more transparent information, and lower investment risks. In other words, when executive directors are not present at an audit committee, the auditors can more explicitly discuss such issues as weaknesses of internal controls, disagreements with managers on accounting principles and practices, potential signs of managerial misconducts or other illegal acts of those in charge at the company In this way, an audit committee can improve effectiveness and productivity in financial conditions by controlling managerial measures. A powerful corporate governance system is expected to reduce fraudulent actions among directors, thereby enhancing the quality of financial information provided by corporations
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