Examining the Moderating Effect of Earnings Management on the Relationship between Financing Anomalies and Stock Mispricing

Document Type : Research Paper

Authors

1 Prof., Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran

2 Assistant Prof., Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

3 Ph.D. Candidate, Department of Accounting, Isfahan (Khorasgan) Branch, Islamic Azad University, Isfahan, Iran.

10.22059/acctgrev.2025.383716.1009029

Abstract

Objective
Risk and return are fundamental factors influencing the pricing of capital assets. In competitive and free markets, pricing is recognized as the cornerstone of many transactions. Price not only represents the market’s understanding of an asset’s value but also serves as a key indicator for evaluating the performance of company managers, and especially the overall performance of companies in the securities market. Determining and assessing price is a highly sensitive and complex process influenced by numerous factors, which can impact investor behavior and market dynamics. The current research examines the moderating effect of earnings management on the relationship between financing anomalies and stock mispricing. Financial anomalies refer to patterns in stock returns that are inconsistent with existing norms and theories, such as the efficient market hypothesis. These anomalies can manifest in various ways and influence investor decisions, and consequently, stock valuation.
Methods
This study adopts a descriptive-correlational design within the fields of accounting and finance. Based on its objective, the research is classified as an empirical fundamental study. The statistical population comprises companies listed on the Tehran Stock Exchange, from which a sample of 105 firms was selected, covering 11 years from 2012 to 2022. A systematic elimination sampling method was employed to ensure that the selected companies met the specific criteria relevant to the research objectives. For model estimation, a multivariate regression approach using panel data was applied, which is particularly suitable for analyzing relationships among multiple variables across periods.
Results
The research results showed that financing anomalies have a positive and significant impact on stock mispricing. This finding is consistent with the idea that when financial anomalies occur, they can lead to irrational pricing behaviors among investors, ultimately leading to incorrect stock valuation. Furthermore, the results indicated that accrual-based earnings management has a positive moderating effect on the relationship between financing anomalies and stock mispricing.
Conclusion
This suggests that companies that engage in earnings management may be able to influence the impact of financial anomalies on their stock prices. By manipulating earnings reports, these companies can obscure real economic realities, thereby reducing the impact of financial anomalies on their stock valuation. In conclusion, this research sheds light on the complex relationships between earnings management, financing anomalies, and stock mispricing. This emphasizes the importance of understanding the effects of management practices on the market and investor behavior. As such, this research provides valuable insights for investors, regulators, and corporate managers who seek to manage the complexities of financial markets. Further research in this area could examine additional factors influencing these relationships and contribute to a more accurate understanding of asset pricing dynamics in emerging markets.

Keywords

Main Subjects

References

 
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Accounting and Auditing Review
Volume 32, Issue 4
2025
Pages 691-714

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