Abstract

Disclosure of information reduces information asymmetry between managers and owners and limits the opportunities for earnings management. On the other hand, institutional investors can transmit confidential information from management to other shareholders, but to validate such monitoring, institutional investors should continue to invest for a period of time that is long enough and moreover, maintain sufficient stocks to reduce the free-rider problem. The present paper aims to investigate the relationship between information asymmetry, earnings management and investment fund monitoring in companies listed on the Tehran Stock Exchange; accordingly, three hypotheses have been proposed and tested. The research population consists of 84 companies listed in the Tehran Stock Exchange, whose data related to a 5-year period (2007-2011) have been collected and analyzed. The results of this study confirmed the first hypothesis and rejected the second and third hypotheses. According to the findings, the level of earnings management is directly and significantly related to the ratio of market value to book value, ownership concentration, state ownership, and financial needs of the sample companies. Also, in general, investment funds have no role in balancing managers financial reporting behavior while the separation of samples into two groups including companies with high and low information asymmetry showed that in companies with low information asymmetry, ownership of investment funds leads to higher levels of earnings management.

Keywords: ownership concentration, short-term investment fund, long-term investment fund, information asymmetry, earnings management.

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