The Examination of Effect of Abnormal Discretionary Costs on Stock Liquidity of Companies Listed in Tehran Stock Exchange

Document Type : Research Paper


1 Assistant Prof. Administrative and Economics Faculty, University of Isfahan, Iran

2 Earnings Management, Abnormal Discretionary Costs, Stock Liquidity

3 BSc. Business Administration, University of Isfahan Iran


Abstract: Stock liquidity is one of the criteria that the investors consider in their portfolio decisions. The earning management is one of the other factors that influence stock liquidity. This could examine in terms of discretionary-related earning management and the real earning management. Therefore the main purpose of this study is to estimate earning management based on the abnormal discretionary costs and also examine its effect on stock liquidity of companies listed in Tehran Stock Exchange. This study conducted through regression model based on panel data and then hypotheses tested through this. The results of data analysis and hypotheses test indicated that the abnormal discretionary costs significantly influence stock liquidity negatively. Also effect of mediator factors on abnormal discretionary costs and stock liquidity has been examined. These factors include standard deviation of daily stock returns, the average daily turnover of stocks, the average closing price of stocks traded, the average number of daily transactions of stocks, and market value of company. Also the results indicated that effects of these factors haven’t been accepted.


Ascioglu, A., Hegde, P., Krishnan, V. & McDermott, B. (2011). Earnings management and market liquidity. Rev Quant Finan Acc.10. 9.
Bachtiar, S. (2008). Accrual and Information Asymmetry. Field Research: Accounting. University of Indonesia.
Chung, H., Sheu, H. & Wang, J. (2009). Do firms’ earnings management practices affect their equity liquidity?. Finance Research Letters. 6,152–158.
Dechow, M. & Skinner, J. (2000). Earnings management: Reconciling the views of accounting academics, practitioners, and regulators. Accounting Horizons. 14, 235-250.
Francis, J., Lafond, R., Olsson, P. & Schupper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Economics. 39, 295–327.
Gupta, M., Mathur, I. & Mishra, S. (2009). Earnings management: consequences for bid-ask spread and market liquidity. Southern Illinois University-Edwardsville Department of Economics & Finance. 50, 101–122.
Lesmond, D., Ogden, J. & Trzcinka,J. (1999). A new estimate oftransaction costs.  The Review of  Financial Studies. 12,1113-1141.
Lim, Ch., Thong, T. & Ding, K. (2008). Firm diversification and earnings management: evidence from seasoned equity offerings. Rev Quant Finan Acc. 30, 69–92.
Loughran, T. & Ritter, J. (1997). The operating performance of firms conducting seasoned equity offerings. J Finance. 52, 1823–1850.
Rangan, S. (1998). Earnings management and the performance of seasoned equity offerings. J Financ Econ.
Richardson, J. (2000). Information asymmetry and earnings management: Some evidence. Review of Quantitative Finance and Accounting.15, 325-347.
Ryan, H. (1996). The Use of Financial Ratios as Measures of Determinants of Risk in the Determination of the Bid-Ask Spread. Journal of Financial and Strategic Decisions. 33-40.
Teoh, S. & Welch, I. & Wong, J. (1998). Earnings management and the underperformance of seasoned equity offerings. J Financ Econ. 50, 63–99.
Trueman, B. & Titman, Sh. & Newman, P. (1988). An explanation for accounting income smoothing; discussion.Journal of Accounting Research: Supplement. 26: 127.