The Effect of Investors Myopic on Earnings Management and Companies Investment

Document Type : Research Paper

Authors

1 Associate Prof, Department of Management, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

2 Instructor, Department of Accounting, Faculty of Accounting, Payame Noor University, Ramhormoz, Iran.

Abstract

Objective: Investors myopic means to overstate the short-term earnings and understate the long-term earnings by active investors in the capital market. As myopic investors have a short-term horizon of vision in the capital market, they focus on the short-term performance of the company and this behavior of investors may motivate managers to better report than reality the company's short-term performance through profit management and investment reduction. Therefore, the purpose of the present research is to investigate the effect of investors' myopia on the profit and investment management of the listed companies in the Tehran Stock Exchange.
Methods: The data required to test the research hypotheses were gathered from financial statements of 150 companies during the six-year period from 2011 to 2017. In order to test research hypotheses, fixed effects multivariate regression model for panel data was used. In this research, Del Rio and Santa Maria model (2016) was used to measure the investors' myopia. Additionally, the modified Jones model (1991) and the expenses paid for investment were used to measure the profit management and company's investment, respectively.
Results: Findings from testing the research hypotheses revealed that the investors' myopia has a significant positive effect on the profit management in companies listed in the Tehran Stock Exchange. Moreover, the investors' myopia has a significant negative effect on the companies' investment.
Conclusion: The results of this research show that by increasing the investors' myopia in Tehran Stock Exchange, the companies' managers focus on short-term performance in meeting the myopic investors' expectations to improve profitability and the current stock price for companies. Instead of focusing on the long-term objectives and planning, the managers thus focus on the short-term objectives. Therefore, by profit manipulation through discretionary accruals and future investment reduction, they make attempts to meet the myopic investors' expectations.

Keywords

References

 
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Accounting and Auditing Review
Volume 27, Issue 3
2020
Pages 410-428

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