The Relationship between Predictive Earnings Management and Opportunistic Earnings Management with Bonus and Stock Return in Iran

Abstract

The present study aims to investigate the relationship between earnings management and a bonus of CEOs. Because earnings management does not have only opportunistic effects, but signaling effects, this study focuses on information disclosure quality to examine earnings management incentives. If firms are classified into two groups of firms with predictive and opportunistic earnings management, it can be assumed that incentives and managers’ operation in these two groups differ. The research's target population consists of listed companies on the Tehran Stock Exchange, among which 91 companies selected over a period from 2009 to 2016. The panel data technique has been applied to estimate the research model. The study's findings show that CEO’s reward has an insignificant positive relationship with predictive earnings management and an insignificant negative relationship with opportunistic earnings management. It shows that firms are bereft of appropriate plans for the CEO’s rewards. Furthermore, the relationship between predictive earnings management, opportunistic earnings management, and the stock return has been investigated. The achieved findings indicate that stock return is influenced by disclosure quality. In other words, the stock return has a positive relationship with predictive earnings management and a negative relationship with opportunistic earnings management.