The Effects of Earning Management on Corporate Cash Holdings: Empirical Evidence From Iran

Holding cash is a matter of managerial discretion. The aim of this paper is to contrast the effect of Accruals Quality on cash holding for a sample of 120 firms listed in the Tehran Stock Exchange during 2001-2011. The results show that firms with good accruals quality hold lower cash levels than firms with poor accruals quality. This result conform the findings of Teruel & Solano (2009), which state that the quality of accounting information may reduce the negative effects of information asymmetries and adverse selection costs, allowing firms to reduce their level of corporate cash holdings. The results also show that cash holdings decrease when firms increase their use of bank debt and in case of investment in other liquid assets. In contrast with this, larger firms and those in financial distress hold higher levels of cash. On the other hand there is not any relationship between growth options, long term leverage, opportunity costs, leverage, dividends and the capacity of firms to generate cash flow and levels of cash holding.