Assessing the Extent of Government Dependence and Earnings Management Incentives in Automotive Companies: Can the Audit Committee Play a Moderating Role? - Quarterly Financial Accounting

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year 17, Issue 66 (2025)

fa 2025, 17(66): 19-35

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Assessing the Extent of Government Dependence and Earnings Management Incentives in Automotive Companies: Can the Audit Committee Play a Moderating Role?

Mehrdad SadrAra ^*

Department of Accounting, University of Guilan, Rasht, Iran.

Abstract: (70 Views)

This study examines the effect of government dependence on earnings management of automobile companies listed on the Tehran Stock Exchange and Iran Fara Bourse and analyzes the moderating role of the audit committee in this regard. The main objective is to determine the extent of the effect of political powers on earnings manipulation and also to examine the ability of the audit committee to reduce these negative effects. In this regard, the effect of three key characteristics of the audit committee, including financial expertise, independence, and size, has been evaluated. The statistical population of the study included automobile companies active on the Tehran Stock Exchange, of which 30 companies were selected between 2016 and 2025 after applying sampling restrictions. The research method was descriptive correlational and the data were analyzed using the generalized least squares (GLS) method. This method was selected due to its ability to control variance heterogeneity and autocorrelation in the consolidated data. The findings show that government dependence has a positive and significant effect on both types of earnings management (committed and actual). In other words, firms with stronger government involvement are more likely to manipulate earnings. Regarding the moderating role of the audit committee, the results indicate that financial expertise and member independence can weaken the positive relationship between political influence and accrual earnings management. However, audit committee size did not have a significant moderating effect. Regarding actual earnings management, only audit committee financial expertise was able to moderate the effect of government involvement. The results of this study are important in several ways. First, it provides strong evidence about the negative impact of government involvement on financial reporting quality. Second, it shows that the professional characteristics of the audit committee can partially reduce these negative effects. These findings are useful for regulators, investors, and other stakeholders in the capital market and emphasize the importance of strengthening the independence and expertise of audit committees in firms with strong government involvement. The present study will make an important step in the development of the literature in this area by filling the research gap in the field of the impact of political factors on earnings management in the automotive industry.

Article number: 2

Keywords: Audit Committee, Government Dependency, Accrued Earnings Management, Real Earnings Management.

Full-Text [PDF 800 kb] (43 Downloads)

Type of Study: Research | Subject: Special

References

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SadrAra M. Assessing the Extent of Government Dependence and Earnings Management Incentives in Automotive Companies: Can the Audit Committee Play a Moderating Role?. fa 2025; 17 (66) : 2
URL: http://qfaj.mobarakeh.iau.ir/article-1-2900-en.html

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year 17, Issue 66 (2025)

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