Accounting flexibility and managers' optimism: Test of management discretion theory

Subject Areas : Management Accounting

Soghra Barari Nokashti ¹ (PhD Student of Accounting, Islamic Azad University, Science and Research Branch. Tehran, Iran)
Bahman Banimahd ² (Associate Professor of Accounting, Islamic Azad University, Karaj Branch. Alborz, Iran.)
Ahmad Yaghoubnejad ³ (Associate Professor of Accounting, Islamic Azad University, Central Tehran Branch. Tehran, Iran)

Received: 2017-08-28 Accepted : 2017-12-22 Published : 2018-06-22

Keywords: Accounting flexibility, Managerial Discretion, Abnormal operating assets net, Managers&amp, #039, optimism,

Abstract :

The purpose of this study was to investigate the relationship between accounting flexibility and the managers' optimism in earnings forecast based on the theory of managerial discretion. The statistical sample of the research includes 129 companies from listed companies in Tehran Stock Exchange between 2008 to 2016. The results of the research show that there is a direct and meaningful relationship between the amount of accounting flexibility with earnings predictive growth and predictive error by management. As firms with high accounting flexibility have a more optimistic prediction than companies with low accounting flexibility. Also, companies with higher accounting flexibility through earnings manipulation have been able to increase earnings above Forecast earnings and their earnings forecast error is positive, but firms with low accounting flexibility due to the effect Cumulative of the past accruals management has been confronted with a limitation on Manipulation of current period earnings and future periods, so the predictive error of their earnings is negative. According to the results of the research, it is suggested to investors and analysts to be attentive to managers' Opportunistic optimism When they use earnings Forecast by Managers

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