Investigating the Effect of Change of Managing Director on Earning Management of Firms listed in Tehran Stock Exchange

ABSTRACT: This study aims to examine the effect of change of managing director on earning management of firms listed in Tehran Stock Exchange (TSE) with respect to big barbery done with a focus on discretionary accruals as an indicator of income manipulation, and stock price. The research population consists of 309 firms, 62 of them are randomly selected and it studies data over seven years from 2002 to 2009. Modified Johns Model is employed to measure the earning management. Having computed discretionary accruals for all firms, the Regression Model is also used to test the research hypotheses for each firm separately to determine if change of management influences discretionary accruals. The results of the study found, in comparison to the years before and after change, no significant relationship between change of managing director and that of chairman and the size of discretionary accruals in the year of change, i.e. no difference was observed in the size of discretionary accruals in the years before or after changing chairman or managing director.