Accounting and Auditing Review

Accounting and Auditing Review

The Effect of Corporate Governance and Competition on Earnings Management in Iranian Banks

Document Type : Research Paper

Authors
Gholamreza Karami 1
Salman Beik Boshrouyeh 2
Milad Asadollahi Ghohieh 3
Ali Mahmoudi 4
1 Prof., Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.
2 Assistant Prof., Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.
3 MSc. Student, Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.
4 PhD. Candidate, Department of Accounting, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.
10.22059/acctgrev.2026.415007.1009270
Abstract
This study aims to investigate the simultaneous impact of corporate governance mechanisms and market competition structure on earnings management within the Iranian banking industry. Focusing on banks active in the Iranian capital market, the present research seeks to analyze the role of key corporate governance variables (including board independence and institutional ownership) and market competition indicators (including the Herfindahl-Hirschman Index and the Lerner Index) in explaining earnings management behavior. Furthermore, this study attempts to fill the existing gap in the literature by simultaneously examining these two dimensions in an emerging market and under the specific institutional conditions of Iran.
Methods
The present research is descriptive-analytical and quantitative, employing an econometric panel data approach for the period from 2013 to 2024. The statistical population consists of 17 banks active in the Iranian capital market. The Modified Jones Model was used to measure earnings management. The independent variables included board independence, institutional ownership, the Herfindahl-Hirschman Index, and the Lerner Index. The control variables included asset growth, revenue growth, and return on assets. The model was estimated using the Estimated Generalized Least Squares (EGLS) method, and diagnostic tests, including the unit root, F-Limer, and Hausman tests, were conducted.
Results
Research findings indicated that board independence has a highly significant negative relationship with earnings management, such that an increase in board independence leads to a decrease in earnings manipulation. Furthermore, institutional ownership also exhibited a significant negative relationship with earnings management, indicating the effective monitoring role of institutional shareholders in constraining management’s opportunistic behavior. From the market competition perspective, the Herfindahl-Hirschman concentration index (which reflects greater market concentration and lower competition) showed a significant positive relationship with earnings management, suggesting that banks operating in highly concentrated environments (with less competition) engage more extensively in earnings management. However, the Lerner index was not statistically significant. Among the control variables, firm growth demonstrated a significant positive relationship with earnings management, whereas return on assets (ROA) and the tangible assets ratio exhibited significant negative relationships with earnings management.
Conclusion
The present study demonstrates that the relationship between corporate governance, competition structure, and earnings management in the Iranian banking environment is largely influenced by monitoring mechanisms and the degree of market monopoly. Board independence and the presence of institutional investors jointly act as effective monitoring mechanisms and lead to a reduction in earnings management. Additionally, the results suggest that a decrease in competition (an increase in market concentration) creates a more favorable environment for earnings manipulation. These findings emphasize the importance for regulatory bodies to consider the simultaneous role of corporate governance and antitrust policies in enhancing financial transparency. It is recommended that future research provide a deeper understanding of these interactions in the Iranian context by considering moderating variables (such as audit quality or state versus private ownership structure) and separately investigating different types of earnings management.
Keywords
Iranian banks
Corporate governance
Panel data
Competition
earnings management
Subjects
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Accounting and Auditing Review
Volume 33, Issue 2
2026
Pages 420-445