A Comparative Study of the Relationship between Real Earnings Management and Earnings Management Based on Accruals to Achieve an Average Profitability

This research aimed to study the behavior of real earnings management and earnings management based on accruals to achieve an average profitability of listed companies in Tehran Stock Exchange. In this study, we focus on the optional operating cash flow, optional cost and production cost as real earnings management representatives as well as discretionary accruals as an earnings management accounting representative. The sample consisted of 84 companies out of 454 companies listed in Tehran Stock Exchange during the period 20112016. Multiple regression and combined data and GLS models (generalized least squares) were used to analyze the data. The results show that there is a significant relationship between real earnings management and earnings management based on accruals to achieve an average profitability of stock companies. There is also a positive and significant relationship between accrualbased earnings management and average profitability, a positive and significant relationship between real earnings management activities (production costs and cash flow from operations) and average profitability. Finally, there is a significant negative relationship between real earnings management (discretionary spending) and average profitability