Stock market reactions to earnings management, corporate risk and weak internal controls

Subject Areas : Journal of Investment Knowledge

sid nia valinia ¹ , Mohammed Hussain Ranjbar ² , daowd khodadady ³ , hojat alaha salari ⁴

1 - Ph.D. Student, Department of Accounting, Bandar Abbas Islamic Azad University, Bandar Abbas , Iran.
2 - Associate Professor, Department of Accounting, Bandar Abbas Islamic Azad University, Bandar Abbas , Iran
3 - Assistant Professor, Department of Accounting, Bandar Abbas Islamic Azad University, Bandar Abbas , Iran
4 - Assistant Professor, Department of Accounting, Bandar Abbas Islamic Azad University, Bandar Abbas, Iran.

Received: 2021-02-06 Accepted : 2021-04-04 Published : 2022-06-22

Keywords: Keywords: market reaction, Internal Controls, business and financial risk, manipulation of accruals,

Abstract :

AbstractThe main function of the capital market is to finance productive production and service activities. To achieve this important goal, the shares of companies listed on the capital market must be attractive enough for investors to invest. One of the most important indicators of the attractiveness of a certain company's stock for investors is the return on investment. The return on investment comes more than anything from changes in a company's stock price, and a company's stock price changes come from its internal information management. In this research, a model for the relationship between market reaction and weak internal controls, manipulation of accruals, business risk and financial risk is presented. This research is a purely experimental research, but, according to the analysis of past information, the statistical population of the research is all companies listed on the Tehran Stock Exchange in the period of 2007 to 2018. Finally, for statistical analysis, the calculated variables have been transferred to the Eviews9 software environment. The research findings show that the weakness of internal controls on the manipulation of real data, business risk and financial risk at the probability level. 5% has a significant effect. Manipulation of real information at the 5% probability level has a significant impact on financial and business risk. Manipulation of real information, financial risk and business risk at the 5% probability level have a significant impact on market reaction.

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