Investigating earnings reduction and misclassification of costs in the income statement of companies listed on the Tehran Stock Exchange
Subject Areas : Transparency in Financial Statements
Ehsan Kermani
1
,
Mohammad Kiamehr
2
1 - Department of Accounting, Darion Branch, Islamic Azad University, Darion, Iran
2 - Department of Accounting, Darion Branch, Islamic Azad University, Darion, Iran
Keywords: Cost of goods sold, general and administrative expenses, misclassification, real activities management, selling expenses,
Abstract :
Purpose: study aims to examine the misclassification of cost of goods sold and operating expenses, including general, administrative, and selling expenses, in the income statements of companies listed on the Tehran Stock Exchange.
Methodology: A sample of 80 companies (1600 company-quarters) from the years 2019 to 2023 was selected for the research. For testing the hypotheses, multivariate linear regression analysis was employed. To investigate the misclassification of costs, the study used quarterly data, exploring the relationship between cost of goods sold and operating expenses with general, administrative, and selling costs.
Findings: The results show a significant negative relationship between gross operating profit reduction and both misclassification of cost of goods sold and misclassification of general, administrative, and selling expenses. Other findings indicate the significant impact of special income and expense items—both operational and non-operational—on this relationship.
Originality: This research contributes to understanding how financial reporting practices, such as misclassification of costs, can affect the apparent profitability and financial health of firms listed on the Tehran Stock Exchange.
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