Does the Managers’ Personality Type Help Them Deceive the Market Through Social Responsibility Disclosure with the Goal of Hiding Earnings Management?
Subject Areas : Mathematical Methods in Financial, Physical, Biological, Social, and Behavioral Sciences.
Ahmad Reza Shafaat
1
,
Mohammad Kashanipour
2
,
Reza Gholami Jamkarani
3
,
Hossein Jahangirnia
4
1 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
2 - Department of Accounting, University of Tehran, Tehran, Iran
3 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
4 - Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran
Keywords: Hiding Earnings Management, Earnings Management, Corporate Social Responsibility Disclosure, Firm Value, Managers’ Personality Type,
Abstract :
The present study aimed to evaluate the effect of entrenchment of managers with personality types A and B through corporate social responsibility (CSR) disclosure with the goal of hiding earnings management on firm value. The research population included companies listed on the Tehran Stock Exchange during 2013-2018. In total, 149 firms were selected by systematic elimination method. In this study, the variables of managers’ personality type, earnings management, and social responsibility disclosure were considered as independent variables, whereas firm value was recognized as a dependent variable. We used the library method to collect a part of the data. In addition, managers’ personality type was assessed using Bortner’s questionnaire. Moreover, we applied descriptive and inferential statistics to describe the collected data. Furthermore, data analysis was performed using ANOVA, F-Limer, Hausman, and Jarque and Bera tests. The Eviews software was used after multivariate regression test to confirm or reject research hypotheses. According to the results of the study, social responsibility disclosure by managers with different personality types with the goal of hiding earnings management affected firm value.
Does the managers’ personality type help them deceive the market through social responsibility disclosure with the goal of hiding earnings management?
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Article Info Article history: Received 00 December 00 Accepted 00 February 00
Keywords: Managers’ Personality Type, Corporate Social Responsibility Disclosure, Earnings Management, Hiding Earnings Management, Firm Value |
| Abstract |
The present study aimed to evaluate the effect of entrenchment of managers with personality types A and B through corporate social responsibility (CSR) disclosure with the goal of hiding earnings management on firm value. The research population included companies listed on the Tehran Stock Exchange during 2013-2018. In total, 149 firms were selected by systematic elimination method. In this study, the variables of managers’ personality type, earnings management, and social responsibility disclosure were considered as independent variables, whereas firm value was recognized as a dependent variable. We used the library method to collect a part of the data. In addition, managers’ personality type was assessed using Bortner’s questionnaire. Moreover, we applied descriptive and inferential statistics to describe the collected data. Furthermore, data analysis was performed using ANOVA, F-Limer, Hausman, and Jarque and Bera tests. The Eviews software was used after multivariate regression test to confirm or reject research hypotheses. According to the results of the study, social responsibility disclosure by managers with different personality types with the goal of hiding earnings management affected firm value. |
1. Introduction
From the information point of view, the concept of profit expresses the result of economic activities, but it is still questioned as the basic criterion of measurement. Based on the assumptions of efficient capital market, empirical studies confirm that accounting profit has informational content [15]. In the meantime, accrual accounting has granted significant choice to managers in determining profit in different time periods. In fact, under this type of accounting system, managers have a great control over the time of recognition of some income and expense items [23]. This has led to the creation of a topic called earnings management. Earnings management is defined as the process of taking conscious steps within the scope of accepted accounting principles to bring the reported profit to the desired profit level, and this act of bringing the reported profit closer to the target profit level is done by manipulating accounting items [26]. Financial statements do not have a problem in terms of being within the framework of accounting standards, and auditors cannot find fault with financial statements from this point of view, but considering that profit is one of the most important factors influencing decision-making, therefore, users' awareness of the reliability of the profit figure can be help them make better decisions [6].
Earnings management is one of the attractive topics in the empirical research of accounting in the capital market. In recent years, this issue has been the focus of accounting researchers in behavioral research. Motivational factors in earnings management can have behavioral and psychological origins [31]. In this regard, some studies have shown that the behavior of earnings management is related to the personality of people, and the manager's behavior in profit maximization can also be related to her moral views [8 , 34].
Another topic discussed in this article is the disclosure of corporate social responsibility. Social responsibility, in one sentence, means examining the impact of the organization's activities on society and is related to unemployment, poverty, environmental pollution and other social issues [19]. Orlitzky et al [29] state that engaging in social responsibility activities not only improves shareholder satisfaction, but also has a positive effect on the company's reputation. In other words, disclosing information about the company's social responsibility creates a positive image of the company among shareholders. since earnings management behaviors may endanger the interests of stakeholders, therefore, it is expected that managers of companies that are more involved in earnings management behaviors pay more attention to corporate social responsibility in order to gain the satisfaction of beneficiaries [18].
According to the mentioned principles, it is necessary to know the personality factors affecting the earnings management and also to disclose the social responsibilities of the company with different purposes, including the concealment of the earnings management applied in the financial statements and the effect of these measures on the value of the company. So far no research has been done in this field.
Therefore, in the first step, the purpose of this article is to examine the effect of disclosing the company's social responsibilities with the aim of concealing earnings management on the firm value, and in the second step, the above relationship will be investigated under the influence of the personality type of the managers.
2. Theoretical foundations and background of research
According to agency theory, managers are unwilling to maximize shareholder wealth [38]. Explicitly introduced by Shleifer and Vishny [37], the theory shows that managers use their decision-making power to make their plans to stabilize their position and neglect the firm’s value. These individuals consolidate their position through specific low-risk investments and show that they play a valuable role in maintaining shareholder interests. On the other hand, theoretical principles suggest that the personal traits of managers (e.g., personality, abilities, values and credibility) affect their selected leadership method [36]. In fact, the leadership style of managers demonstrates their way of thinking, worldview, and personality [28]. A type of personality type segmentation types A and type B personality traits, designed by Friedman and Rosenman in 1974[13]. According to these scholars, differences in personality types can lead to differences in how people deal with and confront different problems.
On the other hand, social disclosure is a type of communication bridge between a commercial unit and stakeholders [11]. Currently, corporates provide inefficient and incomplete social reporting in a way that they fail to precisely determine the social responsibility of firms. This might be due to a lack of legal requirements in this field and reporting based on the desire and taste of managers [1]. Deegan expresses that when disclosure of social responsibilities is carried out optionally, the management can use the tools as a strategy to withdraw the attention of the public from concerning issues of the corporation [10] .
With regard to the information expressed and according to the agency theory, the behavior of managers directly affects the agency expenditures. Given the fact that the personality of managers affect their type of management, and since management selection and active monitoring of managers have always been among the fundamental issues of companies, the present study aimed to evaluate the effect of management entrenchment on social disclosure to hide profit value of company and assess the variable of personality type in this regard. At first, a review of the literature was conducted to understand the effect of management entrenchment with social responsibility disclosure of companies to hide earnings management on corporate value. In other words, we sought to determine whether investors realize this issue and fine managers by reducing the value of corporate’s share or entrenchment is effective in hiding the corporate earnings management styles? In the next stage, we attempted to determine whether the personality type of managers affect the entrenchment of social responsibility disclosure of corporations to hide earnings management by investors or not. Other research questions included: does the personality trait of managers affect the implementation of actions? Is taking actions to deceive investors and increase corporate value correlated with the personality trait of managers? Do specific personality traits of managers affect the corporation’s policies and method of strategy implementation?
According to the legitimacy theory and related considerations (i.e., social contract), a commercial unit carries out special social activities when its manager thinks that the activities are expected from society. This is a type of social contract or legitimacy or license [9]. The legitimacy theory expressed that organization can survive as long as they are considered legitimate by the community. In other words, there is a social contract between companies and each society member. As a set of individuals, the society provides organizations with the authority to use natural resources and workforce. In addition to using these resources, organizations provide goods and services to the community and adversely affect the environment [24]. Organizations’ survival depends on legitimacy as a resource. However, corporations can affect or manipulate these resources.
In other words, managers attempt to increase corporate legitimacy using different strategies, such as moving along with society’s expectations, increasing social benefits of the organization, compared to social expenditures, putting the value system of the organization in line with the value system of society, distributing political, social and economic benefits to different groups through the organization's power channel, changing the corporation’s behavior with changing of community expectations, convincing the community of the organization’s accountability, changing social perceptions or expectations or values, reducing conflict of interest between different stakeholders in the organization, changing public perceptions of society by diverting their attention away from a topic of concern and attracting their attention to other issues. Nevertheless, any measure taken by managers can be effective in society if disclosed and become available to the public [10] . Heal [16] considers social responsibility disclosure of companies as a part of corporate strategies in response to the inconsistency between social goals and the search for profitability (corporate profit goals).
Corporate social responsibility strategy is presented as an emerging management model, and the company is conceived as a set of relationships not only between owners and executives but also with parties and stakeholders interested in the evolution of the company including employees, customers, suppliers, competitors, the environment and society [2]. As such, corporate social responsibility has a threefold social, economic and environmental impact through the development of environmental protection systems and the development of relationships with community, customers or suppliers for the benefit of different companies and stakeholders [2, 40].
On the other hand, behavioral science is a type of applied science and one of the branches of psychology, the underlying basis of which is human beings and their intrinsic, behavioral and personality complexities that must be perceived and recognized in the form of a scientific framework entitled psychology. According to the historical examination of psychology, this type of science improves psychology knowledge, lays the foundation for interaction with other human sciences, and responses to human resources. Behavioral finance is a sub-field of behavioral sciences that deals with financial issues from a wider social perspective and focuses on psychology and sociology and the elimination of mere rational and logical frameworks. Accordingly, in the last two decades, the focus of much of the financial debate from statistical analysis and econometrics on prices and profits has shifted to human psychology, where the financial markets’ behaviors are explained based on a wider view using more realistic assumptions about modern financial management [30]. Scientists have offered different views on and divisions of personality traits of individuals.
In this regard, extended research was performed by “Mir Friedman” and “Ray Rosenman” in 1960 and 1970. During the evaluation of causes of coronary heart disease, these scholars introduced behavioral model as a factor that increases cardiovascular impairments and leads to heart attacks. Friedman and Rosenman named the behavior pattern as type A encompassing four components of competitiveness, work addiction, anger/hostility, and impatience. In addition, behaviors not included in type A model were recognized as components of type B model [42]. The personality model types A and B, which were introduced by Friedman and Rosenman in 1960 and 1970, are explained below:
Heart disease accounts for almost 40% of deaths in the United States. Coronary artery disease involves the reduction of blood flow to the heart muscle. In fact, this type of heart disease is responsible for approximately 90% of heart related deaths. In the early 1980s, a particular approach to studying individual differences in response to stress was found, the results of which pointed out a link between behavioral models and the prevalence of atherosclerosis [4]. At that time, two cardiologists, namely Friedman and Rosenman, studied the causes of coronary heart disease. According to their secretary, the chairs in their waiting rooms were only worn out on the front edge of the seat. These scholars realized that most intolerant patients with heart disease were those who had made their medical appointment on time and were in a hurry to leave. According to the results of the mentioned study, patients were impatient and sat exactly on the edge of their seats. Friedman and Rosenman continued their observations using in-depth interviews [42], the results of which indicated that people with certain behavioral characteristics are at greater risk than others. Later, the term “having type A behavior pattern (TABP) or propensity to coronary atherosclerosis” was used for these individuals, and other people at a lower risk of coronary atherosclerosis were classified as type B model [4]
Friedman and Rosenman defined TABP as:
A combination of action-affect that can be seen in any individual who is aggressively trying to achieve more goals and success in less time and would become hostile to other individuals and things that prevent them from achieving their goals [12]. There are two behavioral patterns of type A and B, the latter being more flexible than the former psychologically.
Individuals with type B behavior patterns may better cope with pressure. In fact, people with type B behavior pattern might thrive under stress [37]. In contrast to TABP, individuals with type B behavior patterns are less ambitious, hostile and aggressive and experience less time urgency and hastiness [25].
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Diagram 1. Comparison of type A and B behavior patterns
The TABP is characterized by aggressiveness, a sense of time urgency, and the desire to achieve recognition and advancement [3]. Research shows that most senior executives in organizations are of type B [36, 32]. In terms of leadership style, personality is an important individual feature of managers that must be understood [35]. Despite the obvious impact of leaders’ personality on their attitude, performance and management method, there is a paucity of published manager personality assessment studies [17]. In general, all psychologists believe that all human characteristics (i.e., intelligence, talents, personality, interests, attitudes, and so forth) come into play in performing any task. Man has totality, and his whole being comes into action in all that he does [14].
All the internal factors of a person affect their characteristics of behavior, thinking and feeling [17]. The interaction between a manager’s personality and his desire to act in a specific way can be predicted by understanding his personality [35]. On the other hand, Robert Tannenbaum and Warren Schmidt (1961)[39] expressed that the manager must consider three categories of factors or forces before choosing a leadership style or method, including:
Forces that affect a manager's personality, including their value system, trust in subordinates, preference for leadership styles, and a sense of security in situations of uncertainty. Subordinate forces that influence manager behavior. Location forces are the values and traditions of the organization, how subordinates can work as one unit, the nature of an issue and whether the authority needed to manage it can be delegated with confidence, and time pressure [21]. According to Deegan [10], it is poised that managers use social responsibility disclosure strategy to hide earnings management and their managerial authorities in the field. In fact, this is the strategy of “changing the public's perception of society by diverting attention away from the subject of concern and drawing attention to other issues.” With regard to former literature [17,35], managers' personality type is expected to influence other factors such as the amount and level of use of earnings management tools and method of use of dimensions of disclosure of their corporate social responsibility to cover the earnings management of financial statements. On the other hand, all of these assumptions can be evaluated by considering private benefits hypothesis in order to maximize personal wealth using the increased corporate value and reaching maximum achievable benefits of agreements governing agency relations.
3. Research Hypotheses and Methodology
Hypothesis 1) Entrenchment affects firm value by using the disclosure of corporate social responsibility (CSR) to hide earnings management.
Hypothesis 2) Entrenchment has a different effect on firm value in terms of various personalities of managers by using the disclosure of corporate social responsibility (CSR) to hide earnings management.
3.1. Type of Research
This is an applied research that follows a descriptive correlational method since it evaluates the current status from one hand and determines the relationship between different variables applying regression analysis from the other hand. Moreover, the current ex-post facto (application of previous information) was carried out based on actual financial statements of companies listed on the Tehran Stock Exchange. In addition, other real information is used in the research, making it generalizable to the overall statistical population using an inductive method.
3.2. Statistical Population, Sampling, Sample Size Calculation
The statistical population included all companies listed on the Tehran Stock Exchange. According to the following conditions, we established a homogeneous statistical population and assessed the screened community:
1. Being listed on the Tehran Stock Exchange at least since 2013 and be active until the end of the research 2018.
2. Having a fiscal year-end on March 19th.
3. Not being a bank, an insurance company, or a financial or investment institute.
4. Having trading halts no longer than three months.
5. Having access to information required to calculate the research operational variables.
Table 1. Different stages of statistical population screening
Different sampling stages | N |
The number of companies listed on the Tehran Stock Exchange at the end of the Persian year of 1397 (2019). | 512 |
The number of companies that were not listed on the Tehran Stock Exchange before April 2013 or have a cessation of activity since the end of the Persian year 1397 (2019). | 122 |
The number of companies that did not have a fiscal year-end on March 19th. | 83 |
The number of companies that are banks, insurance companies, as well as financial or investment institutions. | 106 |
The number of companies that have trading halts for more than three months. | 39 |
The number of companies that have no access to the information required to calculate research operational variables. | 13 |
Number of evaluated companies | 149 |
Therefore, according to the above criteria, a total of 149 firms were selected as research sample, and 894 firm-years were collected to test the research hypotheses.
3.3. Data Collection and Processing Methods
In the present study, we collected data using a library method. In addition, the theoretical discussions of the research were collected from research sources, publications, domestic and international sources in libraries and the internet. It is notable that the primary information of firms was used to collect data, meaning that the overall information and data required were collected by library method using Rahavard Novin software and by referring to the Tehran Stock Exchange and studying the financial statements of companies listed on the Tehran Stock Exchange during 2013-2018.
In addition to assessing the basic financial statements of firms, the information related to the financial statements was retrieved from the Stock Exchange Website. Furthermore, Bortner’s personality type questionnaire (1968) was used to assess the personality type of managers. Given the lack of access of managers to complete the questionnaire, information related to 662 firm-years was extracted to evaluate personality type variable. However, we had no access to the personality type of managers of 232 firm-years. Therefore, in order to prevent the unusual removal of observations, all 232 inaccessible firm-years were entered into Eviews software as an empty record and were automatically eliminated by the software without the involvement and subjective judgment of the researcher.
3.4. Statistical Models of Hypotheses
First Hypothesis Estimation Model
FVit = β0 + β1CSRit + β2 DEMit + β3CSR * DEMit + β4 Sizeit + β5 Debtit + β6 Riskit + β7Working capitalit + β8Industryit + β9 R&DIntensityit + εit | (1) |
In the mentioned equation, β3 shows the relationship between entrenchment by using disclosure of CSR to hide earnings management and firm value. The significance of this coefficient confirms the existence of this relationship and the lack of rejection of hypothesis 1.
Second Hypothesis Estimation Model
FVit = β0 + β1 CSRit + β2 DEMit + β3 CSR * DEMit + β4 Ptit + β5 CSR * Ptit + β6 DEM * Ptit + β7 CSR * DEM * Ptit + β12 Sizeit + β13 Debtit + β14 Riskit + β15 Working capitalit + β16 Industryit + β17 R&DIntensityit + εit | (2) |
In the above equation, the significance of β7 coefficient shows the effect of the personality type of managers and their entrenchment through CSR disclosure for hiding earnings management of corporation on firm value. The absolute value of the coefficient indicates the magnitude of this effect. A positive β7 coefficient demonstrates that the manager’s entrenchment has been effective and the market is misled. In addition, there is an increase in firm value in spite of earnings management. On the other hand, a negative β7 coefficient shows the identification of manager’s action by the market and the subsequent decrease of firm value. The significance of β7 coefficient is indicative of lack of rejection of hypothesis 2.
3.5. Measurement Methods of Research Variables
A) Dependent variable: firm value (FV)
In this study, a company's stock market value will be considered as an index of firm value.
B) Independent variable: corporate social responsibility (CSR)
The variable encompasses four dimensions, including employee relation disclosure (EMPD), community disclosure (COMD), production disclosure (PROD) and environmental disclosure (ENVD).
The variable was evaluated applying content analysis, and sentences in texts of appendix notes of financial statements were used for content analysis in terms of classification.
CSR Disclosure
The total value of CSR disclosure is calculated from the sum of the small value dimensions of CSR using the equation below [27, 33]:
CSR= EMPD + COMD + PROD + ENVD | (3) |
The total score of CSR disclosure:
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| (9) | |||||||
| (10) | |||||||
| (11) | |||||||
| (12) | |||||||
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| Mean | Median | Maximum | Minimum | Standard deviation | Observations |
Social responsibility disclosure | CSR | 2.6231 | 2.6165 | 4.0213 | 0.9857 | 0.6277 | 894 |
Firm value | FV | 4621.1 | 4539.8 | 10800 | 84.4 | 2063.3 | 894 |
Earnings management | DEM | 0.4742 | 0 | 1 | 0 | 0.4996 | 894 |
Managers’ personality type | Pt | 0.3942 | 0 | 1 | 0 | 0.489 | 662 |
Managers’ personality type in interaction with earnings management | Pt *DEM | 0.1903 | 0 | 1 | 0 | 0.3928 | 662 |
Social responsibility disclosure with earnings management | CSR*DEM | 1.1997 | 0 | 4.0833 | 0 | 1.4738 | 894 |
Managers’ personality type in interaction with social responsibility disclosure | CSR* Pt | 1.1997 | 0 | 4.0833 | 0 | 1.4738 | 662 |
Managers’ personality type in interaction with earnings management and social responsibility disclosure | CSR*DEM* Pt | 0.4825 | 0 | 4 | 0 | 1.1059 | 662 |
Firm size | Size | 14.261 | 14.07 | 19.37 | 10.49 | 1.534 | 894 |
Debt ratio | Debt | 0.0219 | 1.455 | 303.82 | -1713.5 | 62.745 | 894 |
Risk | Risk | 14.379 | 11.97 | 187.93 | -11.96 | 20.438 | 894 |
Working capital | Working Capital | -90457 | 115433 | 3516835 | -6660440 | 4738796 | 894 |
R&D expenditures | R&D Intensity | 0.0083 | 0 | 1.6725 | 0 | 0.0814 | 894 |
Source: researcher’s findings
Table 2 includes the main central and dispersion indices. The mean showing the balance point and center of gravity distribution and properly demonstrating the centrality of the data was estimated at 2.62 for the variable of social responsibility disclosure. Median is another central indicator that shows the society’s status, demonstrating that half of the data are less than this amount while the other half is more than this amount. In addition, equal amounts of mean and median are indicative of the normal variable. It is notable that the mean and median of social responsibility disclosure was 2.62. Dispersion indices are a criterion for determining the degree of dispersion of data from each other or the extent of dispersion relative to the mean. Standard deviation is one of the most important indicators of dispersion, which was estimated at 0.63 for the variable of social responsibility disclosure.
4.2. Diagnostic Tests in Combined Data
F-Limer and Hausman tests were used to determine the model applied in combined data. In this regard, the F-Limer test is used to determine the application of panel data against the integration of all data. In the present study, the mentioned tests were exploited for hypothesis 2. The results are presented in the table below:
Table 3. F-Limer and Hausman test results
| F-Limer test | Level of significance | Result | Hausman test | Level of significance | Result |
Hypothesis 1 model | 8.976674 | 0.0000 | Panel | 28.70835 | 0.0000 | Fixed effects |
Hypothesis 2 model | 9.165891 | 0.0000 | Panel | 20.753684 | 0.0011 | Fixed effects |
Source: Researcher’s findings
As observed, the integration method is used for observations with a probability of more than 5% or with test statistics below the table’s statistics. On the other hand, the panel data method was used for observations with a test probability below 5%. According to the results, the panel data method was accepted for the models of hypotheses. The panel data method can be performed using two models of “random effects” and “fixed effects”, which are selected using the Hausman test. In this regard, fixed and random effects models are exploited for observations whose probability is less and more than 5%, respectively. According to the hypotheses’ model, Chi-square was estimated at below 5%. Therefore, fixed effects model was applied to analyze the models.
4.3. Summary of Analysis Based on Research Hypotheses
Statistical test results of hypothesis 1:
Table 4. Summary of results of the first hypothesis model using panel data method during 2013-2018
Variables | Coefficients | Standard deviation | t-statistic | Level of significance | Results | |||
Y-intercept | β0 | -1201.111 | 449.6755 | -2.671061 | 0.0077 | Positive | ||
Social responsibility disclosure | CSR | -98.67577 | 16.68657 | -5.913486 | 0.0000 | Negative | ||
Earnings management | DEM | -29.40903 | 91.72810 | -0.320611 | 0.7486 | Insignificant | ||
Social responsibility disclosure in interaction with earnings management | CSR*DEM | 88.38661 | 30.53526 | 2.894576 | 0.0039 | Positive | ||
Firm size | Size | 422.5063 | 19.90104 | 21.23036 | 0.0000 | Positive | ||
Debt ratio | Debt | -0.460067 | 0.491490 | -0.936065 | 0.3495 | Insignificant | ||
Risk | Risk | -19.80254 | 1.150110 | -17.21795 | 0.0000 | Negative | ||
Working capital | Working Capital | 5.22E-06 | 1.22E-05 | 0.429195 | 0.6679 | Insignificant | ||
Research & development expenditure | R&D Intensity | 237.7853 | 274.4790 | 0.866315 | 0.3866 | Insignificant | ||
Industry 1 | Industry1 | -1138.636 | 971.6149 | -1.171900 | 0.2416 | Insignificant | ||
Industry 2 | Industry2 | 3550.095 | 363.1492 | 9.775858 | 0.0000 | Positive | ||
Industry 3 | Industry3 | 1885.511 | 362.8811 | 5.195946 | 0.0000 | Positive | ||
Industry 4 | Industry4 | 409.7860 | 397.2073 | 1.031668 | 0.3025 | Insignificant | ||
Industry 5 | Industry5 | 319.7881 | 415.9233 | 0.768863 | 0.4422 | Insignificant | ||
Industry 6 | Industry6 | -354.5287 | 380.2421 | -0.932376 | 0.3514 | Insignificant | ||
Industry 7 | Industry7 | 412.3938 | 372.6257 | 1.106724 | 0.2687 | Insignificant | ||
Industry 8 | Industry8 | 1472.671 | 468.4278 | 3.143858 | 0.0017 | Positive | ||
Industry 9 | Industry9 | 571.3739 | 764.4586 | 0.747423 | 0.4550 | Insignificant | ||
Industry 10 | Industry10 | -552.6381 | 375.8806 | -1.470249 | 0.1419 | Insignificant | ||
Industry 11 | Industry11 | 304.7650 | 369.0823 | 0.825737 | 0.4092 | Insignificant | ||
Industry 12 | Industry12 | 1981.805 | 371.4061 | 5.335952 | 0.0000 | Positive | ||
Industry 13 | Industry13 | 365.1082 | 723.2441 | 0.504820 | 0.6138 | Insignificant | ||
Industry 14 | Industry14 | 273.0928 | 381.9764 | 0.714947 | 0.4748 | Insignificant | ||
Industry 15 | Industry15 | -232.5915 | 360.9823 | -0.644329 | 0.5195 | Insignificant | ||
Industry 16 | Industry16 | -1394.381 | 763.9905 | -1.825129 | 0.0683 | Insignificant | ||
Industry 17 | Industry17 | 795.7762 | 375.2116 | 2.120873 | 0.0342 | Positive | ||
Industry 18 | Industry18 | -181.9998 | 372.3992 | -0.488722 | 0.6252 | Insignificant | ||
Industry 19 | Industry19 | 182.9637 | 410.8743 | 0.445303 | 0.6562 | Insignificant | ||
Industry 20 | Industry20 | 109.3515 | 368.1265 | 0.297049 | 0.7665 | Insignificant | ||
Industry 21 | Industry21 | -293.1467 | 512.3272 | -0.572187 | 0.5673 | Insignificant | ||
Industry 22 | Industry22 | 116.2852 | 360.8282 | 0.322273 | 0.7473 | Insignificant | ||
Determination coefficient | 0.843482 | F-statistic | 480.2152 | |||||
Modified determination coefficient | 0.841517 | Level of significance | 0.000000 | |||||
| Durbin-Watson | 2.078544 |
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Source: Researcher’s findings
The results showed that the probability of t statistic for the fixed coefficient and coefficients of variables of social responsibility disclosure, social responsibility disclosure in interaction with earnings management, firm size, risk and 2, 3, 8, 12 and 17 industries on firm value was less than 5%, thereby confirming the significance of the association in this regard. The coefficient estimated by software for variable of social responsibility disclosure in interaction with earnings management had a positive, significant impact on firm value, which showed the direct relationship between social responsibility disclosure in interaction with earnings management of firm value and a more than 5% possibility of t statistic for variables of earnings management, debt ratio, working capital, type of industry, and R&D expenditures and 1, 4,…, 7, 9, 10, 11, 13, …, 16, 18, …, and 22 industries on firm value.
Therefore, the coefficient of estimation of the above variable was not statistically significant. The modified coefficient of determination indicates the explanatory power of the independent variables that can explain 84% of the dependent variable changes. The probability of F statistic indicates that the whole model is statistically significant. According to the hypothesis, given the positive, significant impact of social responsibility disclosure in interaction with earnings management on firm value, there was a direct association between social responsibility disclosure in interaction with earnings management and the value of firm. As such, the H0 is rejected, meaning that entrenchment to hide earnings management by using CSR had a significant effect on firm value.
Statistical test results of hypothesis 2:
Table 5. Summary of results of the second hypothesis model using panel data method during 2013-2018
| Variables | Coefficients | Standard deviation | t-statistic | Level of significance | Results |
Y-intercept | β0 | -1164.733 | 580.2745 | -2.007210 | 0.0452 | Negative |
Social responsibility disclosure | CSR | -101.0473 | 21.81849 | -4.631271 | 0.0000 | Negative |
Earnings management | DEM | 204.1523 | 97.63730 | 2.090925 | 0.0369 | Positive |
Social responsibility disclosure with earnings management | CSR*DEM | -150.4951 | 35.94957 | -4.186284 | 0.0000 | Negative |
Managers’ personality type | Pt | -92.17956 | 88.31153 | -1.043800 | 0.2970 | Insignificant |
Managers’ personality type in interaction with earnings management | CSR* Pt | 25.04317 | 23.58481 | 1.061835 | 0.2887 | Insignificant
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Social responsibility disclosure with earnings management | Pt *DEM | -1014.669 | 247.4677 | -4.100208 | 0.0000 | Negative |
Managers’ personality type in interaction with social responsibility disclosure | CSR*DEM* Pt | 562.7860 | 75.97790 | 7.407233 | 0.0000 | Positive |
Firm size | Size | 398.2077 | 22.57810 | 17.63690 | 0.0000 | Positive |
Debt ratio | Debt | -0.446012 | 0.477234 | -0.934577 | 0.3504 | Insignificant |
Risk | Risk | -19.03683 | 1.317560 | -14.44855 | 0.0000 | Negative |
Working capital | Working Capital | 1.17E-05 | 1.24E-05 | 0.943850 | 0.3456 | Insignificant |
R&D expenditure | R&D Intensity | -106.0919 | 215.8414 | -0.491527 | 0.6232 | Insignificant |
Industry 1 | Industry1 | -659.7663 | 1025.087 | -0.643620 | 0.5201 | Insignificant |
Industry 2 | Industry2 | 3917.556 | 500.3595 | 7.829483 | 0.0000 | Positive |
Industry 3 | Industry3 | 2153.557 | 500.1295 | 4.305999 | 0.0000 | Positive |
Industry 4 | Industry4 | 742.6271 | 548.8721 | 1.353006 | 0.1765 | Insignificant |
Industry 5 | Industry5 | 823.7989 | 516.5300 | 1.594871 | 0.1112 | Insignificant |
Industry 6 | Industry6 | 288.5906 | 506.7804 | 0.569459 | 0.5692 | Insignificant |
Industry 7 | Industry7 | 696.5972 | 503.8975 | 1.382418 | 0.1673 | Insignificant |
Industry 8 | Industry8 | 2114.128 | 557.8013 | 3.790109 | 0.0002 | Positive |
Industry 9 | Industry9 | 1306.207 | 801.6656 | 1.629367 | 0.1037 | Insignificant |
Industry 10 | Industry10 | -21.09775 | 515.1995 | -0.040951 | 0.9673 | Insignificant |
Industry 11 | Industry11 | 614.9161 | 504.1985 | 1.219591 | 0.2231 | Insignificant |
Industry 12 | Industry12 | 2045.024 | 514.3802 | 3.975705 | 0.0001 | Positive |
Industry 13 | Industry13 | 2216.464 | 893.5681 | 2.480464 | 0.0134 | Positive |
Industry 14 | Industry14 | 914.0390 | 506.3693 | 1.805084 | 0.0715 | Insignificant |
Industry 15 | Industry15 | 184.1497 | 498.9593 | 0.369068 | 0.7122 | Insignificant |
Industry 16 | Industry16 | -395.8478 | 906.2078 | -0.436818 | 0.6624 | Insignificant |
Industry 17 | Industry17 | 1180.775 | 509.9575 | 2.315437 | 0.0209 | Positive |
Industry 18 | Industry18 | 483.4597 | 499.7147 | 0.967471 | 0.3337 | Insignificant |
Industry 19 | Industry19 | 1096.752 | 571.9577 | 1.917540 | 0.0556 | Insignificant |
Industry 20 | Industry20 | 557.0745 | 502.7805 | 1.107988 | 0.2683 | Insignificant |
Industry 21 | Industry21 | -238.5660 | 837.4209 | -0.284882 | 0.7758 | Insignificant |
Industry 22 | Industry22 | 379.8266 | 497.2887 | 0.763795 | 0.4453 | Insignificant |
Determination coefficient | 0.856898 | F-statistic | 409.4074 | |||
Modified determination coefficient | 0.854561 | Level of significance | 0.000000 | |||
| Durbin-Watson | 1.956417 |
| |||
Source: Researchers’ findings
Results also indicated that the possibility of t statistic for fixed coefficient and coefficients of variables of social responsibility disclosure, earnings management, social responsibility disclosure in interaction with earnings management, managers’ personality type in interaction with earnings management, managers’ personality type in interaction with earnings management and social responsibility disclosure, firm size, risk and 2, 3, 8, 12, 13, and 17 on firm value was less than 5%. Therefore, mentioned the relationship was statistically significant. In addition, the coefficient estimated by the software for managers’ personality type in interaction with earnings management and social responsibility disclosure had a positive, significant impact on firm value, demonstrating a direct association between managers’ personality type in interaction with earnings management and social responsibility disclosure. Moreover, the positive coefficient demonstrated the recognition of managers’ actions by market and increased market value of the firm.
In addition, the t statistic for coefficients of managers’ personality type, managers’ personality type in interaction with social responsibility disclosure, debt ratio, working capital, type of industry and R&D expenditures and 1, 4, …, 7, 9, 10, 11, 14, 15, 16, 18, …, and 22 on firm value was less than 5%. Therefore, the mentioned coefficient was not statistically significant. The modified coefficient of determination indicates the explanatory power of the independent variables that can explain 86% of the dependent variable changes. The probability of F statistic demonstrated that the whole model is statistically significant. Given the significant and positive effect of managers’ personality type in interaction with earnings management and social responsibility disclosure on firm value, there was a direct relationship between managers’ personality type in interaction with earnings management and social responsibility disclosure on firm value. The positive variable was indicative of identification of managers’ actions by market and increased corporate market value. Therefore, the H0 is rejected, meaning that managers’ personality type significantly modified the effect of entrenchment with the use of CSR disclosure with the goal of hiding earnings management on firm value.
5. Discussion and Conclusion
According to the tests, managers’ personality type in interaction with entrenchment using SCR disclosure to hide earnings management had a significant impact on firm value. Given the fact the positive impact of managers’ personality type in interaction with entrenchment using CSR disclosure to hide earnings management, there was a direct relationship between managers’ personality type in interaction with entrenchment using CSR disclosure to hide earnings management and firm value.
Therefore, it could be concluded that managers’ personality type significantly modified the effect of entrenchment using SCR disclosure to hide earnings management on firm value. The results of the hypothesis demonstrated that the presence of managers with personality type A in an economic agency increased firm value. Since managers with personality type A are more committed to their invested projects and consider that strong projects with a current positive value create values in the market, projects with high performance or even with a positive current net value could be good news for investors based on the signaling theory. This is mainly due to the fact that positive changes in projects’ performance can have a positive effect on market price and investors’ expectations of future corporate performance that increases the future benefits of managers. Therefore, managers with personality type A can better transfer the future firm value to investors and increase their benefits by reducing asymmetric information. In this regard, our findings are in line with the results obtained by Martinez [22] and Adams and Zutshi [1].
The results obtained in this study are in line with the documentation mentioned in the theoretical framework of financial research and literature. Therefore, it could be concluded that entrenchment with the use of SCR disclosure to hide earnings management had a significant effect on firm value and the mentioned impact could be modified by managers’ personality type. These results can enhance the understanding and knowledge of capital market investors and researchers and might be used to identify other factors that can explain changes in earnings management and firm value. The applicable results of the study can be used in two groups; the first group includes financial information users such as investors, creditors, managers, and auditing firms. Users are those who are directly related to the financial performance and results of corporate performance. The second group includes researchers, policy-makers, and developers of accounting standards or institutes such as stock exchange, who are interested in financial and economic topics. Much of the research results are in line with theoretical foundations and, while filling in the research gap in this area, can assist managers in proper management and shareholders in investing and determining company policies and procedures.
According to the results related to the evaluation of hypothesis one, entrenchment with using CSR disclosure with the goal of hiding earnings management significantly affected firm value. Therefore, we propose that efficient mechanisms be used by the Tehran Stock Exchange to ensure investors, creditors, and activists of the capital market of the relationship between CSR disclosure and firm value. By doing so, investors focus on CSR disclosure in their decision-making regarding the purchase of firms’ stock so that the capital market efficiency areas could be gradually provided. If it happens, an efficient market can be created by enhancing the transparency of information processes in the capital market and elimination of information rentals. The presence of such a market can encourage economic activists to better manage economic cycles and properly direct national capital and wealth towards production and employment, which will eventually result in economic growth and development.
On the other hand, based on the results of the second hypothesis, the effect of entrenchment with CSR disclosure to hide earnings management on firm value had a different impact on managers with different personality types. Therefore, it is recommended that the managers’ personality type be considered by investors and creditors as an important variable to assess risks and opportunities facing the economic unit in making a decision about buying and selling stocks and adopting different investment strategies. Furthermore, it is suggested that more comprehensive necessities be approved by the auditing organization regarding the disclosure of factors of managers’ personality type to reduce information asymmetry as much as possible.
Similar to other studies, this research has also faced limitations. the limitations of the present research can be mentioned as follows:
1. Since some firms did not report their social responsibility performance in the form of explanatory notes during the research period, we did not have access to the information of all firms. On the other hand, access to the personality type of all managers was not possible due to researchers’ lack of access to managers or unwillingness of some managers to cooperate in this regard.
2. There are other factors involved in this research, including macroeconomic and political factors and behavioral bias of real investors that are beyond the control of the researcher. These factors may affect the results of the study; however, the effects of these factors are not considered in the present study.
Nonetheless, it is believed that none of the limitations had an adverse impact on test results, and the present research had proper internal and external validity.
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