Pages: 130-139

Abstract

Earnings management is one of the most popular subjects among investors, legislators, analysts, and financial statements’ users. According to Fischer, earnings management is the managers’ purposeful intervention in the extra organizational financial reporting procedure. Improving the audit quality is one of the ways to reduce earnings management because those companies that manipulate and manage profits are more prone to have a modified audit report (unacceptable). The main aim of the current research is to examine the effect of financial leverage and liquidity on the earnings management and capital in companies listed on the Tehran Stock Exchange. The statistical population of this study is the companies listed on the Tehran Stock Exchange for a six-year period from the beginning of 2011 to the end of 2016. The results of this research designate that there is a significant relationship between financial leverage and the ratio of liquidity variables with earnings management listed on the Tehran Stock Exchange. The results specify that there is no significant relationship between the financial leverage and the liquidity ratio with the capital of the companies listed on the Tehran Stock Exchange.