The Effect of Corporate Governance on Corporate Diversification with an Emphasis on Earnings Opacity

Subject Areas : Corporate sustainability

Zahra Shekari Astyar ¹ , Saeid Anvar Khatibi ²

1 - MSc. student of Accounting, Ilkhchi Branch, Islamic Azad University, Ilkhchi, Iran
2 - Assistant Professor of Accounting, Faculty of Management, Economic and Accounting, Tabriz branch, Islamic Azad University, Tabriz, Iran

Received: 2023-10-01 Accepted : 2023-12-02 Published : 2023-11-22

Keywords: Corporate Governance, Corporate Diversification, Earnings Opacity,

Abstract :

According to the agency conflicts hypothesis, managers' ability to distort and hide information depends on the degree of complexity of the organization. Companies with complex organizational environments and more agency problems have high diversification compared to other companies. However, mechanisms are needed to control the opportunistic behavior of managers. Therefore, the purpose of this study is to investigate the impact of corporate governance on corporate diversification, emphasizing the lack of profit transparency in companies listed on the Tehran Stock Exchange. In this regard, 110 companies were selected for the period of 2016-2021. The purpose of applied research and its methodology is post-event type. The combined data approach has been used to test the research hypotheses. Eviews statistical software was used to test research hypotheses. The results showed that the use of corporate governance mechanisms limits managers' motivation to diversify. On the other hand, when profit opacity is high, corporate governance mechanisms are not capable enough to limit the incentive of corporate diversification.