An Evaluation of the Relationships between the Corporate Governance Mechanisms, the Free Cash Flow, and Earnings Management in Tehran Stock Exchange Listed Companies
The accruals on one hand enable the managers to calculate the earnings in a way indicative of the actual value of the financial firm and on the other hand, let them abuse the flexibility of the methods and the accepted principles of accounting besides distorting the informative content of the earnings. One of the duties of the corporate governance is to decrease the conflicts of interest between shareholders and managers. The corporate governance reduces the chances of earnings management and probably improves the investors' knowledge of corporate performance credit. On the other hand, when the financial units' managers face the free cash flow, initially it is important that they can invest the mentioned flows in convenient and efficient projects, so they can create value for their shareholders through this approach. In this regard, the current study aimed at evaluating the relationships between the corporate governance mechanisms, the free cash flow, and earnings management in Tehran Stock Exchange listed companies. The research hypotheses were tested through the integrated data statistical procedure, during the beginning of 2009 to the end of 2015, using the information of 170 companies chosen by systematic elimination sampling. The results of the study indicated that according to Jensen's Theory (1986) the corporate governance features reduce the earnings management and the free cash flow.