EARNINGS MANAGEMENT AND INVESTOR REACTION: THE CASE OF IRAN’S CAPITAL MARKET USING GAME THEORY

Mohammadreza Abbaszadeh, Mahdi Salehi and Amir Malekinejad
Additional contact information
Mohammadreza Abbaszadeh: Ferdowsi Univeristy of Mashhad, Mashhad, Iran
Mahdi Salehi: Ferdowsi Univeristy of Mashhad, Mashhad, Iran
Amir Malekinejad: Ferdowsi Univeristy of Mashhad, Mashhad, Iran

Ekonomski pregled, 2022, vol. 73, issue 4, 617-642

Abstract: The purpose of the article is to investigate the interaction between the behavior of managers and investors toward Iran’s capital market and the focus on agency theory which ends up with the conflict between the utilities of manages and investors because a conflict of interest implies an attempt to spread opportunistic behavior. In the current study, the benefit of reducing capital cost (manager’s utility) and return on assets (investor’s utility) are considered variables of interest of either party, in that Osborne’s game theory was used in a two-step manner. The study population consisted of the companies listed on the Tehran Stock Exchange and Iran Over-the-Counter Market, classified in the game table according to managers’ behavior toward high or low earnings management and investor’s behavior toward acceptance non-acceptance of stock. The experimental results presented in this paper uphold the agency theory, indicating a conflict between managers and investors in Iran’s capital market, particularly in the Tehran Stock Exchange. According to game theory, Nash’s dominant equilibrium comes to the fore when dealing with the manager’s low earnings management and investor’s choice of strategy to accept a share in Iran’s capital market and Tehran Stock Exchange. Alternatively, the presentation of transparent financial statements and the acceptance of such a company stock can maximize parties’ utilities.

Keywords: earnings management; game theory; agency theory; trading volume (search for similar items in EconPapers)
JEL-codes: C71 C72 C79 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32910/ep.73.4.6 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hde:epregl:v:73:y:2022:i:4:p:617-642

Ordering information: This journal article can be ordered from
Ekonomski pregled, Hrvatsko društvo ekonomista, Heinzelova 4a, 10000 Zagreb, Croatia
http://www.hde.hr/pregled_en.aspx

Access Statistics for this article

Ekonomski pregled is currently edited by Josip Tica

More articles in Ekonomski pregled from Hrvatsko društvo ekonomista (Croatian Society of Economists) Contact information at EDIRC.
Bibliographic data for series maintained by Josip Tica ().