The Effects of Earning Management on Corporate Cash Holdings: Empirical Evidence From Iran

Subject Areas : Business Strategy

Seyed Ali Mohammad Taghavi ¹ , Ali Javanmard ²

1 - Department of Accounting, Dehdasht Branch, Islamic Azad University, Dehdasht, Iran
2 - Department of Accounting, Marvdasht Branch, Islamic Azad University, Marvdasht, Iran

Received: 2014-04-20 Accepted : 2014-06-20 Published : 2015-04-01

Keywords: earnings quality, Information Asymmetry, agency conflict,

Abstract :

Holding cash is a matter of managerial discretion. Theaim of this paper is to contrast the effect of Accruals Quality on cashholding for a sample of 120 firms listed in the Tehran Stock Exchangeduring 2001-2011.The results show that firms with good accruals quality hold lower cashlevels than firms with poor accruals quality. This result conform thefindings of Teruel & Solano (2009), which state that the quality of accountinginformation may reduce the negative effects of informationasymmetries and adverse selection costs, allowing firms to reduce theirlevel of corporate cash holdings. The results also show that cash holdingsdecrease when firms increase their use of bank debt and in case ofinvestment in other liquid assets. In contrast with this, larger firms andthose in financial distress hold higher levels of cash. On the other handthere is not any relationship between growth options, long term leverage,opportunity costs, leverage, dividends and the capacity of firms togenerate cash flow and levels of cash holding.