The effect of real earnings management on audit fees in listed companies in Tehran Stock Exchange

Abstract

Stock liquidity providers (market makers or specialists) for firms that manage earnings face greater uncertainty about the true value of their inventory of stocks of such firms and a possible of loss while trading against more informed traders. This study examines the effect of earnings management on stock liquidity of listed companies in Tehran stock exchange. To investigate this effect, panel date techniques is applied on a sample of 81 companies, over the period of 2004-2009. Earnings management is identified using Jones model. The empirical analysis shows that firms that manage earnings have wider bid-ask spreads. So the empirical results indicate that companies with higher earnings management suffer lower stock liquidity. [PUBLICATION ABSTRACT]