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

Authors

1 Department of Accounting, Dehdasht Branch, Islamic Azad University, Dehdasht, Iran

2 Department of Accounting, Marvdasht Branch, Islamic Azad University, Marvdasht, Iran

Abstract

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.

Keywords