Design and analysis of Manager- Shareholder strategy game: An application of game, earnings management and corporate governance theories

Document Type : Research Paper


1 MSc., Accounting, Rouzbahan Institute Of Higher Education, Sari, Iran

2 MSc., Faculty of Humanities and Social Sciences, Mazandaran University, Babolsar, Iran


Conflict and cooperation are the main features of organizations and human’s behavior which are revealed in contraction with others. To maximize their utilities and cooperation maintenance, managers and shareholders take action to apply earning management and corporate governance, or due to any reason (and maybe morally) they decide not to do them. The current paper aims to analyze the conflict between managers and shareholders in Tehran Stock Exchange, using game theory to find an equilibrium point in which the manager and shareholder are the main players, being satisfied across increasing their benefits. The hypotheses are analyzed by using pool data of 87 firms existing in TSE, over the years spanning 2007 to 2012. The first hypothesis and the second to fifth hypotheses are analyzed by using the Best Response function and Mann-Whitney test, respectively. By analyzing the result of the game, it is cleared that strong corporate governance strategy and intense earning management strategy don’t guide the players to equilibrium in utilities. Moreover, "strong corporate governance - slight earning management" strategy profile is a weakly dominant Nash Equilibrium.


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