The relationship between ownership structure, discretionary accruals ...

International Research Journal of Applied and Basic Sciences © 2014 Available online at www.irjabs.com ISSN 2251-838X / Vol, 8 (8): 1006-1018 Science Explorer Publications

The relationship between ownership structure, discretionary accruals and profit awareness Fatemeh Zarei and iman jokar Research Branch, Islamic Azad University , Fars ,Iran Corresponding Author: Iman Jokar ABSTRACT: In this research the relationship between ownership structure, discretionary accruals, and profit awareness is examined. For this purpose, the financial data of listed companies accepted in Tehran Stock Exchange Between 2007 to 2011 are used. The present study is practical and main objective of this research is the relationship between ownership structure, discretionary accruals and profit awareness. In this regard, to calculate the discretionary accruals the modified Jones model is used. To analyze the collected data we have used SPSS and Eviews7 softwares. Research results showed a significant negative relationship between local ownership, discretionary accruals and profit awareness. Other findings of research are that there is a significant negative relationship between ownership concentration and absolute discretionary accruals and vice versa, the relationship between ownership concentration and profits awareness are positive and significant. Keywords: ownership structure, concentration of ownership, local ownership, discretionary accruals, profit awareness INTRODUCTION Recently special attention has been paid to management of benefit from legislators and the public press. According to views of Healy and Wallen (1999) and Leuz and colleagues (2003), profit management can be interpreted as changing the reported economic performance of firms by internal factors that have mistaken some of the shareholders or could leave an impact on contractual earnings. Nature of accounting accrual causes that managers could discuss a distinct set in determination of reported company's actual benefit for each particular period. Information asymmetry allows managers so they can manipulate various earnings in order to maximize private profit or determine private information affective on decision and use it to their advantage and thus effects on the benefit information ability (Healy, 1985, Holthausen and colleagues, in 1995, Gul et al, 2003, Chung et al, 2004). Accounting numbers that is considered includes profit to reduce organizational costs in setting ability to executive compensation, creates motivations for management of benefit including programs of loans benefit, debt covenants, analyzing expected decrease or increase of capital that is usable in different conditions. Researchers in their previous researches in this field in countries of America, Denmark and Singapore have examined that how property management can effect on the ability of benefit information (Warfield et al, 1995, Gabrielsen et al, 2002, Yeo et al, 2002). And also there will be evidence in this field as a combination. Some of the researchers (Warfield et al, 1995, Gabrielsen et al, 2002) in another study emphasize more on the effects of local ownership on discretionary accruals and also Demsetz and Villalonga (2001) concluded that in order to deal effectively with the structure of ownership as well as calculating complexity of reported earnings in a clear ownership structure both dimensions of ownership structure (internal ownership and ownership concentration) should be taken into account. According to this proposal, in this research, this distance will be examined with research on the effects of both dimensions of ownership structure (internal ownership and ownership concentration) on discretionary accruals and also ability of benefit awareness. The main goal is to answer the question that is dimensions of the ownership structure effective on the discretionary accruals and benefit awareness or not? Theoretical Foundations The theory of ownership structure It should be noted that the effect of ownership structure on accruals and profits and efficiency of companies is a very important and complex subject. So types of conflict between the interests of individuals and groups can be

Intl. Res. J. Appl. Basic. Sci. Vol., 8 (8), 1006-1018, 2014

expected, such as the conflict of interests between owners and managers, shareholders and creditors, real and legal shareholders, internal and external stakeholders, etc. can be mentioned. However, one of the most important aspects of the representation theory is related to the non-convergence of interest between managers and shareholders that constitutes the main topic of most of research in this field. According to experts, stakeholders should always apply accurate and effective monitoring on management, and always try to avert creation of contradict in the objectives and incidence of diversion in managers’ efforts. Of course, in any case shareholders by election of directors and delegating decision-making authority to them under the circumstances may be located in passive position that its strength and weakness will heavily depend on performance, accuracy and precision of stakeholders’ decisions on other (Pushner, 1993). One of the major issues in the system of corporate administrative is knowledge of ownership structure and ranking it in the standardized scales so by using it we can develop necessary strategies in establishment of administer system of the company. The purpose of the ownership structure of the companies is the combination of shareholders. This means that different types of stakeholders can make different ownership structures which impacts of each one on fiscal policies and capital structure, discretionary accruals and the concept of benefit awareness may be different (Berisford et al, 2001). ownership concentration Refers to a condition that considerable deserved amount of shares of the company owned by major shareholders and shows that how much percentage of company’s shares are in the hands of a limited number of people. Mahdavi and Meidary research results (2005) suggest that the concentration of ownership in Tehran securities market in the year 2005 has been very high. Mahdavi and Mydry (2005) argue that cooperation of ownership concentration indices in Iran market and five countries of America, Japan, Germany, China, Czech, indicate that Iran stock market has a highly concentrated ownership structure. Moreover, in Iran like the country of Czech, more concentration of ownership has been associated than performance. In other words, small ownership has a negative impact on performance and accordingly, these two researchers have concluded that due to the lack of a support system of minority shareholders, implementation of divesting public enterprises ownership to public (equity shares) can reduce gross domestic product and even leads to unfair distribution of income. Discretionary accruals Discretionary accruals represent the difference between accounting profit and cash flow which contains changes in product inventory, receivable and payable accounts. If the positive accruals are large, it suggests that accounting earnings from cash flow from operations of business units is much greater. It should be noted that this difference is due to applying the accounting principles in time and manner of recognition of revenues and costs (principles of recognition and accommodation) (Konan et al, 2001; Hashemi and Azizi, Bita). Accruals in the general classification are divided into two following parts, which are described below: 1. Discretionary accruals and 2. Non-discretionary accruals Discretionary accruals Analysis of earnings management often emphasizes on the management use of discretionary accruals. Discretionary accruals are those of which accruals that cannot be described by the normal operation (Defond et al, 1998), which means those of the accruals that are subject to management distortions and have unusual nature (Stolowy, 2005). In result another part of accruals that are expected to be reported in routine activities of the institution, are called non-discretionary or normal accruals (predicted). Judgments that are used by managers are effective on the financial and reports usually are done through the part of accrual of profit, because the ability to distortions and enforcing judgment about the cash part of benefit is much lower than accrual. It is assumed that profit is managed in a predictable manner and to achieve specific goals (Thomas et al, 2000), which means the greater the percentage of discretionary accruals; managed rate of profit is greater. Since the discretionary and non-discretionary accruals are not clearly separated, in previous studies, various methods have been used to separate these two sections that some of them are briefly mentioned. In each of the following models non-discretionary accruals are calculated, then through its difference with total accruals, discretionary accruals will be achieved (Hashemi and Azizi Bita). The concept of profit awareness In different studies conducted around the world the terms of profit awareness has been used in one meaning with stock price awareness (Park and Shin, 2004). Profit Gahydhndgy (or price Gahydhndgy) by Zarowin (2002) is defined as: "The amount of information that is hidden in the current period of stock returns about future profits or future cash flow." One of the most important elements in the corporation information is their financial

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statements, income and loses statement indicating result of the activities of the corporation in a financial period and also its final figure represents pure profit and loss of that period and it is considered as fundamental basis for most of decision makings, stock valuation and pricing models, so that the accuracy, reliability, ability to rely, trust, prediction and realization of it will have direct relationship with the correctness of decision makings and evaluations. So far numerous articles about the information content of accruals relying on empirical evidence from the stock market of Iran have been published. What that is gained from these studies indicates this fact that discretionary and nondiscretionary accruals cause effect and relation of profits. Since discretionary accruals elements provide the opportunity for management to manipulate profits, they are used as an indicator of earnings management and profit management studies are generally about accruals. There are also evidences suggesting that there is a relationship between earnings management and stock price. Thus, accruals are created from the difference between profit and flow cash from operation, including changes in depreciation cost, receivable accounts, item inventory, payable accounts and etc. (Hashemi and Behzadfar, 2011). EmpiricalRecord Internal history Mahdavi and Meidary (2005) argue that comparing ownership concentration indices in Iran market and five countries of America, Japan, Germany, China, Czech, indicate that the Iran stock market has a highly concentrated ownership structure. Moreover, in Iran like country of Czech, more focus of ownership has been associated with more performance. In other words, small ownership has a negative impact on performance and accordingly, these two researchers have concluded that due to the lack of a support system of minority shareholders, implementation of divesting public enterprises ownership to public (equity shares) can reduce gross domestic product and even leads to unfair distribution of income. Etemadi and colleagues (2009) examined the impact of organizational culture, ownership concentration and ownership structure on the quality of financial information of accepted companies in Tehran Stock Exchange. Results of this research was conducted on 105-stock companies suggest that three factors of corporate culture, ownership concentration and ownership structure affect the quality of financial information. Among these factors, ownership structure has the least direct effect on the quality of information but its most important role is moderating effects that effect on the relationship between organizational culture and quality of relationship and also relationship between ownership concentration and quality of financial information. In a manner that is whether a company ownership structure is more private, ownership concentration leads to an increase in the quality of financial information, while in the lower-owned private companies, this relationship is reversed. Hence it is recommended to make arrangements that non-private companies with less private ownership, only allowed to have a maximum 25% stake in listed companies (directly or through intermediary companies and their subsidiaries). Mahmoodabadi and Mansour (2011) by examining the role of discretionary and non-discretionary accruals in forecasting operating cash flows in accepted companies on the stock exchange found that discretionary and non-discretionary accruals do not have ability to predict future cash flows. Rezazadeh and Zaheri (2012) in examining the relationship between discretionary accruals, systemic risk and the financial failure of accepted companies in Tehran Stock Exchange concluded that: 1. In Iranian capital market, stock prices can predict future profits; for future profitability forecasts, current profitability compared to the stock prices, has additional information content; for forecasts of future profitability, discretionary accruals compared to the current profitability and stock prices, has additional information content; and also 2. Discretionary accruals are related with systemic risk level and level of the companies’ financial disability risk. Thus, discretionary accruals have effect on market valuation of the firms’ risk. External history The practical results in the fields of the relationship between local ownership, also discretionary accruals and benefit awareness are presented as complexities. Warfild and colleagues (1995) have examined exchange information related to America to find a positive relationship between ownership management and the information content of earnings and have observed a negative relationship between ownership management and discretionary accruals. On the other hand Gabrielsen et al (2002) have observed a negative relationship between management ownership and information content of earnings and a non-significant and positive relationship between management ownership and discretionary accruals, in an example of Danish companies that had relationship of different corporate collections between the America and Denmark. Thus high concentration of ownership in Denmark can be realized and other assumptions will play a more important role in this context (warfield et al, 1995, Gabrielsen et al, 2002):A) Asymmetric information causes investors to need better accounting information in time of dispersion of ownership. B) The negative impact of earnings quality on management ownership and c) Restricting

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hypothesis. Gabrielsen and colleagues (2002) have suggested that their results may be applicable to companies in a range of non-US from economy, because the management ownership in Danish companies that is much more than American companies (with a mean of 59% against 17%) can be similar with most non-US countries. Finally, based on the performance of resources of local ownership (Mark et al, 1978, McConnell and Servaes 1990), Yeo et al (2002) have proposed a non-linear relationship between local ownership and both cases of information content of increasing profits and revenues of discretionary accruals, in an example of Singapore companies that express both of them are influenced positively and negatively and these effects are included on the similar system of cooperatives management for the different levels of local ownership. They also found that when local ownership is less than 25%, local ownership leaves a positive impact on the information content of earnings (discretionary accruals) according to predictions of organizational theory. But managers are limited beyond this level and their relationships in both variables will be reversed. These issues and local ownership that limit opportunistic actions of managers, show a relationship between the number of shares available to internal factors and also the absolute value of discretionary accruals. Although this topic has been raised that high levels of local ownership can be inefficient in organizing internal factors to take decisions that maximizes firm value and expresses it a positive relationship. Similarly, although convergence of interest hypothesis shows a positive relationship between the ability of benefits information and local ownership, management restricting issues can offer a negative relationship and this case believes that when accounting figures have less informative measuring in economic performance, high ownership management is considered as an organizational possible answer. Most previous researches show discretionary accruals that examine only one aspect of ownership structure that is considered as local ownership. Limited research on fields of company management that has a special connection with ownership concentration can measure this variable with proposed classification by major and main shareholders (McConnell and Servaes, 1990, Agrawal and Knoeber 1996, Demsetz and Villalonga 2001, De Miguel et al. 2004 Boubraki et al, 2005). Most of this practical research expresses that monitoring by owners causes to improve the quality of management’s decisions and thus improves the value of the company because the existence of these sorts of individuals can lead to managers closer monitoring and thus less opportunity cost for accruals management or received profit changes. Research Hypotheses First hypothesis: There is a significant relationship between local ownership and discretionary accruals. Second hypothesis: There is a significant relationship between local ownership and the profit awareness. Third hypothesis: There is significant relationship between local ownership and discretionary accruals. Fourth hypothesis: There is a relationship between local ownership and the profit awareness. RESEARCH METHODS METHODOLOGY The present research in terms of research method is descriptive and correlational that by collecting quantitative data obtained from the sample we will try to review generalizing it to the entire statistical society. Since the presence or absence of relationship between the variables is used the model is regression and considering that research assumptions state the relationship of a variable in relation to another variable, thus bivariate regression model is used. Actually this research is some kind of practical research that is used by using the context of fundamental research to develop and enhance human welfare. In this study, the actual data of the stock market, the financial statements, notes with the financial statements and reports of corporate bodies have been used. Statistical population and sample The statistical population of this study includes all accepted companies in Tehran stock exchange in different industries and groups that have been working in the time interval between years of 2007 to 2011 in stock. In present study by adjusting statistical population after the following restrictions, statistical sample is determined: According to this that the period under study in this research is a five-year period 2007 to 2011, firms that are accepted in Tehran Stock Exchange and their titles listed on a stock panel and their shares has been dealt up to March 29, 2006. Shares trades of these companies should be continued regularly until 29 March 2011. Their trades should not be constantly interrupted, or their trading symbol should not be closed or accordance with decision of Exchange Council, should not be deleted and removed from the list of listed companies.

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The end of their fiscal year ends in March. us of shareholder ownership rate over the five year period (2007-2011) should be well-defined. Results Stat of their operations in the period of five years (2007-2011) should be completely clear so that the status of benefits awareness can be checked. Finally, with the above restrictions 83 companies listed in Tehran Stock Exchange has been selected as sample. operational definition of research variables Measuring accruals According to the views of Dechow and colleagues (1995) we have calculated the accrual component as followed. Relation ( ) ( 1 ) In this equation: Is equal to the total changes made in current assets; and : Changes made in cash and cash equivalents; and : Changes made in the total of current liabilities and : Changes in long-term debts in current liabilities, and : Is equal to the depreciation and accumulated depreciation expense. Using a modified model of Jones (1991) for estimating nondiscretionary accruals will be used (DeFond & Jiambalvo, 1994, Yoe et al, 2002, Larcker & Richardson, 2004): Relation )2( For each year and industry we will regressions for accruals sum ( ) with respect to changes in income ( ) and gross property, fixed assets and equipment ( ), also total assets ( ) are marked with delay to avoid the non-uniformity problems. Using estimates for the regression parameters ( ) we will estimate each of nondiscretionary accruals (NDCA) of companies of sample by adjusting sales changes for changes in receivable accounts ( ), to allow probabilities to be raised, that companies are facing in the change in the sales with credit periods changing (Dechow et al, 1995). Relation

)3( And we can include discretionary accruals for firm i in year t as the remaining part of total accruals. Relation )4( According to previous researches (warfield et al, 1995, Gabrielsen et al, 2002), we will use the absolute value of discretionary accruals [ABS (DCA)] as a measure of profit manipulation. Describing the models used in hypothesis testing For testing each of hypotheses of this research, following models are used orderly. • The following two equations are related to absolute discretionary accruals. Relation )5( Relation )6( : The absolute value of discretionary accruals by using the modified Jones model. Proportion of shares ownership in the hands of board; : Ratio of ordinary shares ownership of major shareholder; : Is the corporate investment risk (beta of market model); : The ratio of market value to office value, : Will be the coefficient of profit changes for the past 5 years; : Ratio of debt to total assets;

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: Is as local ownership which to estimate it we use proportion of ordinary shares held in Board of Directors that is considered as institutional ownership. : Is ownership concentration that is defined as the number of ordinary shares which are held by largest shareholders. : That we can calculate companies growth opportunities using the ratios of market to office value that market strongly reduces companies growing for the negative account surplus. In this way companies’ growth will have strong negative correlation by responding to the benefit studies that is done possibly to avoid the cost of capital or preserving access to capital. In fact, firms with high proportion of market-to-office may have higher discretionary accruals than firms with lower ratio market to office value. : is raised as the coefficient of profits change for the past 5 years. According to the views of Gabrielsen and colleagues (2002), managers of companies with high profits variability will tend to change profits to avoid negative impact caused by the variability of profits in capital costs needed for new projects thus we will expect a positive relationship between profits variability and accruals. : As an estimate for the size of the company the benefit natural logarithm of annual sales (log sales) was used and we expect that companies’ size to have negative relation with accruals because larger companies will have less tendency to hide abnormal accruals than smaller companies that can be not counted by financial analysts and publications. A closer checking by people who look from outside can potentially reduce the opportunism of managers for accounting differentiation increase in large corporations. : In addition risk of debts or risk of non-payment of debt will be measured by the ratio of debt to total assets. According to the Part and Shane's vision (2004) companies that are facing with financial constraints or difficulties will have incentives for earnings management incrementally in order to avoid the potential loss resulting from providing a funding issue. This topic can represent a distinct positive relationship between accruals and financial leverage size. At the end we have included a vector of dummy variables to control the possible influence of the year ( ) and represents the effects of the non-participating (non-observed anomalies) shows error time. Because the ability of accounting earnings informing is usually considered as a measure of the quality of accounting information for investors the second part of our conceptual model investigates in conjunction with the relationship between ownership structure and information content of interest. Such an approach is usually included in the area of corporate ownership structure and earnings management, for example warfield et al (1995), Gabrielsen and colleagues (2002) and Yue et al (2002) have expressed it (Sanchez - But the Balsta, 2007): • The two following equation is related to the ability to profit awareness. Relation )7( Relation )8( : Ratio of earnings per share to price of the previous period, which is earnings per share (EPS) of firm i in period t and P represents the price per share at the beginning of the presented period. : can show the effects of interaction between variable of ownership structure and information content of interest and indicates that how much capability of profit awareness is influenced by management ownership and management focus. This regression is included in resources related to values and it is presented as an incremental organizational research in which profits variables in explaining yields help in the case that the estimated regression coefficients are significantly different from zero. Finding this case that mark of a variable of ownership structure has a positive relation with stock returns is considered as an indicator that shows the variables are based assessment. Since we use the data that has both time and cross-sectional changes we can use panel data methods for controlling non-participating non-uniformity and to achieve harmonized estimates use coefficients. Recent studies like what have been carried out by Hausman and colleagues (1999), Palya (2001) and Bryce and colleagues (2005) show that there are features in company that measuring them is difficult and can lead to relations associated with an error between independent and dependent variables that is observed in cross-sectional regressions. This case will disappear when these companies take lack of specific uniformity into account. We can include this kind of lack of uniformity in our model through impacts of specific company. We can also do Hausman test (1978) in order to choose this case that which model of fixed impacts based on within group estimator or random impacts based on least public squares have the

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best way to fit with our data. Since we use the data that has both time and cross-sectional changes we can use panel data methods for controlling non-participating non-uniformity and to achieve harmonized estimates use coefficients. Recent studies like what have been carried out by Hausman and colleagues (1999), Palya (2001) and Bryce and colleagues (2005) show that there are features in company that measuring them is difficult and can lead to relations associated with an error between independent and dependent variables that is observed in crosssectional regressions. This case will disappear when these companies take lack of specific uniformity into account. We can include this kind of lack of uniformity in our model through impacts of specific company. We can also do Hausman test (1978) in order to choose this case that which model of fixed impacts based on within group estimator or random impacts based on least public squares have the best way to fit with our data. RESULTS OF RESEARCH Descriptive Statistics Table (1), is stator of descriptive statistics for the time period considered in this study that includes years 2006 to 2011. That this features of statistical description related to this range include: Skew-slenderness, the average and number of observations and so for each variable in this time series.

Skewness

Standard deviation

Minimum MaximumMedian Average Statistical description

Table 1. Descriptive statistics

Discretionary accruals

Income from Method

Investment risk

Debt to total assets

Ownership of shares in the hands of the Board

Ownership ratio of ordinary shares of major shareholders

111118

51644216

51221216

11854675

1112

1121

111115

51737312

51278242

1172674

1115

1125

1161

61538268

61176655

1

11121

1135

111145

21854421

41378761

1111

1115

1114

1111112

11564164

11513124

11121354

11116617

1116826

11112

-11133345

-11122573

-1151344

-111452146

-11131251

Analysis of variance forecast error In this way the shock to the discretionary accruals in variance of forecast error of a variable is determined. This technical breaks down contribution of volatility of each variable in response to the shocks into on discretionary accruals model. Analysis of variance is shown in Table (4-2).

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Table 1. Analysis of variance Period 1 2 3 4 5 6 7 8 9 10

S.E.

DAS

LNSOWN

BLOCK

RISK

11415462 11674428 1187127 11113741 11128543 11231361 11326712 11414151 11515842 11585114

1111111 44148321 47184623 44144825 84116364 82114861 74181156 67174481 61167744 56163161

11111111 11134382 11216583 11616445 11166815 11811114 21422252 21441386 31517131 31441555

11111111 11142212 11576661 21318664 51614618 11117241 15125636 21118873 24114337 27141167

11111111 11441144 11361526 21636544 41164878 51827381 71514823 41126182 11162211 11146617

References: research findings

In Table (4-2) the analysis of variance it is shown that analysis of variance is related to variable of discretionary accruals. The first column indicates prediction error in different eras. The source of this error, is change in the current value and future shocks predictor error in the first period grows to a size 0/4 and in the second period to 0/67 over time. The next columns show the percentage of variance caused by sudden change or specific shock. In the second column of the table shows that in the first period, one hundred percent of changes are caused by absolute discretionary. In the second period of absolute discretionary accruals, 99 percent is related to absolute discretionary accruals and 0/03 percent is related to proportion of ownership of shares in the hands of board. During changes in the index of yields more than 50% is caused by momentum of yields indicator, about 3% is caused by momentum ratio of stock ownership in the hands of the Board, about 20 percent is caused by the momentum ratio of ordinary shares ownership of shareholders and approximately 10 percent is related to investment risk. Static test Before estimating production function to be ensured of non-spurious regression and following it the uncertain results, it is necessary to examine static variables. Therefore Breitung test was used in which optimal breaks are determined by the Schwarz criterion. According to Table (3-4) it is observed that null hypothesis based on existence of the unit root for the variable of interest is rejected, so the absolute value of discretionary accruals variables, the ratio of stock ownership, 1- JörgBreitung, (2000). “The Local Power of Some Unit Root Tests for Panel Data,” in B. Baltagi (ed.), Advances in Econometrics, Vol. 15: Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Amsterdam: JAI Press, p. 161–178. the proportion of common stock owned by major shareholders, investment risk of company, ratio of company investment, the ratio of market value to book value, income variation coefficients for the past 5 years, the log of revenue from annual sales and the ratio of debt to total assets is static. Table 3. static test (Brytang), in the level Variable name

Level Computational statistics

Break

prob

Results

-6/2365

1

1/111

Static

-2/4817

1

1/1111

Static

-5/4185

1

1/1111

Static

-6/2365

1

1/111

Static

-5/2341

1

1/111

Static

-2/4817

1

1/1111

Static

-5/4185

1

1/1111

Static

-4/6543

1

1/111

Static

-3/7683

1

1/1111

Static

-5/5

1

1/111

Static

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Source: Research Findings Table 4. the overall final result of static test on variables Variable

Static test result I(0) I(0) I(0) I(0) I(0) I(0) I(0) I(0) I(0) I(0)

Source: research findings

Checking the first hypothesis Table (5) the results of estimating the model by fixed effects method for discretionary accruals and local ownership (3-1) Table5. Name of independent variables

Mark of the independent variables

Coefficients

T-statistics

Prob

Intercept

C

8/15

4/72

1/1111

ratio of stock ownership in the hands of the Board

-1/47

-2/66

1/1183

ratio of ordinary shares ownership of major shareholder

-1/17

-3/18

1/1111

company investment risk

1/182

8/3

1/1111

ratio of market value to book value

1/111

4/1

1/1111

The coefficient of variation for the past 5 years profit

1/113

4/8

1/1111

the natural logarithm of revenue from annual sales of ratio of debt to total assets

/157

4/7

1/1111

Ratio of debt to total assets

1/3

3/2

1/1111

coefficient of adjusted determination

1/47

F-statistic

364

Probability

1/111111

Durbin-Watson

1/44

After estimating the above function, hypothesis test one is as following.

Amount of t statistic, the aspect ratio of stock ownership in hands of Board of directors is larger than amount of table that is equal to 2, so the hypothesis is rejected, thus the hypothesis against it is accepted and there is a significant relationship between local ownership and absolute discretionary accruals, so the first hypothesis of this research is confirmed.

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T-statistics related to the coefficients of independent variables at the 5% level are significant, so all coefficients have a significant effect on discretionary accruals. At the bottom of the statistic table adjusted coefficient of determination or coefficient of modified determination is obtained 0/97 so the 97 percent of variations of discretionary accruals is explained by the independent variables and since in the model, all of the coefficients are significant consequently the coefficient of determination has a high amount so there is no problem of multicollinearity in the model. Results of Durbin Watson statistics test is given in Table (5). Durbin Watson statistic is equal to 1/94, and since if this statistic is close to two, it is indicator of absence of autocorrelation in the model so we conclude that there is no autocorrelation in our model. F statistics is given in Table 5. Represents that overall regression is significant and since in this table, computational F statistics is larger than statistics table, so the overall model is significant. THE SECOND HYPOTHESIS TEST RESULTS Table (6) the results of estimating the model by fixed effects method for discretionary accruals and the concentration of ownership of model (3-2) Table6. Prob

The independent variable sign

Coefficients

T-statistics

C

4/8

7/8

1/1111

- 1/14

-2/14

1/1138

1/23

3/67

1/1345

-2/4

-4/45

1/1111

1/21

3/14

1/1121


1/54

4/43

1/111

The coefficient of variation for the past 5 years profit The natural logarithm of revenue from annual sales

1/78

4/7

1/1111

2/12

5/18

1/1111

ratio of debt to total assets

1/674

3/486

1/1111

adjusted coefficient of determination F-statistic Prob(F-statistic) Durbin Watson

1/83 =215 1/111111 1/43

Name of the independent variables Intercept ratio of stock ownership in the hands of the Board square of ratio of stock ownership in the hands of Board ratio of ordinary shares ownership of major shareholders company investment risk

After estimating the above function, test hypothesis one, is as following.

As the results in Table 6 show, amount of t statistic, the aspect ratio of shares ownership in hands of major shareholders is larger than amount of Table that is equal with 2, so the hypothesis is rejected, therefore the opposite hypothesis result is accepted and there is a significant relationship between major shareholders and absolute discretionary accruals, so the second hypothesis of this research is approved. THE THIRD HYPOTHESIS TEST RESULTS Table (7) the results of estimating the model by fixed effects method for local ownership and Profit knowledge of model (3-3)

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Table7. Name of the independent variables Intercept

Symbol

Coefficients

T-statistics

Prob

C

1/1144

4/57

1/1111

ratio of stock ownership in the hands of the Board ratio of the ordinary shares ownership of major shareholder

-1/48

-3/4

1/1111

1/175

4

1/1111


-1/55

-3/75

1/1111


1/1

3/47

1/1111


-3/77

-3/55

1/1111

The natural logarithm revenue of annual sales ratio of debt to total assets

2/55

3/68

1/1111


-1/54

-4/76

1/1111

Durbin-Watson

1/87

Adjusted coefficient of determination

1/41

F-statistic

213

Prob(F-statistic)

1/111111

Source: Research Findings

After estimating the above function, the third test hypothesis, is as following.

As the results in Table 7 show, amount of t statistic, the aspect ratio of the ownership shares in hands of major shareholders is larger than the amount of Table that is equal 2, so the hypothesis is rejected, in the result the opposite hypothesis is accepted, and there is a significant relationship between local ownership and the profit awareness ability, so the third hypothesis of this research is confirmed. The fourth hypothesis testing Table (8) the results of estimating the model by fixed effects regression method for the concentration of ownership with the profit awareness ability of model (3-4) Policy recommendations According to prove of impact of ownership structure on the ability of accruals profit awareness, investors are advised to pay attention to the shareholders combination, consider them in making their decisions. It is recommended to analysts and investors that in their decisions consider variables such as profits changes, ratio of earnings per share to its market value and ratio of profit per share to book value of each share in addition to other measures. It is recommended to Stock Exchange Organization to establish a website that provides transparent and updated information about shareholders combination and the ownership structure to users of financial statements.

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Table8. Prob Name of the independent variables

Variables’ sign

Coefficients

T-statistics

1/146

4/5811

1/1111

ratio of stock ownership in the hands of the Board

-1/174

-3/4544

1/1111

square of ratio of stock ownership in the hands Board

4/45

5/5

1/1111

ratio of ordinary shares ownership of major shareholder

1/134

3/74

1/1111


-1/1175

-5/57

1/1111


1/142

6/2

1/1111


-2/25

-4

1/1111

The natural logarithm of revenue from annual sales of ratio of debt to total assets

1/12

4/3874

1/1111


-1/146

-6/6341

1/1111

Adjusted coefficient of determination

1/87

F-statistic

784

Prob(F-statistic)

1/111111

Durbin-Watson

1/445

Intercept

C

Source: Research Findings

After estimating the above function, the fourth hypothesis testing, is as following.

As the results in Table 8 show, amount of t statistic, the aspect ratio of ordinary shares ownership in hands of major shareholders is larger than amount of Table that is equal 2, so the hypothesis is rejected, the result is the opposite hypothesis is accepted, and there is a significant relationship between common shareholders and absolute discretionary accruals, so the fourth hypothesis of this research is confirmed. CONCLUSION The first hypothesis test results indicate that there is a significant correlation between local ownership and absolute discretionary accruals, so the first hypothesis of this research is approved. In other words, local ownership leaves a negative and significant effect on discretionary accruals. The second hypothesis test results indicate that there is a significant relationship between local ownership and profit awareness. This relationship is negative. In the third hypothesis testing, we determined that there is a negative relationship between ownership concentration and absolute discretionary accruals. And finally, the fourth hypothesis test results revealed that there is a significant positive relationship between ownership concentration and the ability of profit awareness. Other results are as following. The ratio of stock ownership in the hands of the Board ( ) leaves a significant negative effect on the profit awareness. Looking to increase the amount of shares in the hands of the board, so the board's power to manage profit is increased toward their goals, resulting the ability of profit awareness to reduce.

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Square of the proportion of shares ownership in the hands of the Board ( ), leaves a significant positive effect on the ability of profit awareness. Since the ratio of stock ownership in the hands of the Board is between zero and one when it is squared its numbers get smaller and thus the proportion of ownership reduces, therefore, the amount of shares in the hands of the Board reduces and due to stock release in the hands of public, information is no more in the hands of a few specifics, and true information is published, that is why the ability of information of profit is increased. The proportion of ordinary shares ownership of major shareholders ( ) leaves a significant positive effect on the ability of profit awareness. Following to get stock ownership out of hands of the board and increasing the number of shares owners, the information is available to more people, thus management has less ability to manipulate profits and change figures so ability of profit increases. The coefficient of changes in profit for the last 5 years ( ) leaves a significant negative effect on the ability of profit awareness. By increasing profit dispersion, demanders of shares ensuring toward purchasing stocks will reduce, so company owners will be looking to gain investor confidence and thus they manipulate financial figures and profit management, so the ability of profit awareness reduces. The natural logarithm of annual sales revenue ( ) leaves a significant positive effect on the ability of profit awareness. With higher revenues, companies do not tend to manipulate financial data and thus the profit management, thereby by increasing amount of sales, also the ability of profit awareness increases. Ratio of debt to total assets ( ) leaves a significant negative effect on the ability of profit awareness. As the debt ratio increases, the mindset of investors to invest in companies becomes negative and to avoid this issue or to provide the required conditions by banks and other financial institutions company owners will attempt to manage profit. REFERENCES Healy, P. M. and Wahlen, J. M. (1999) A Review of the Earnings Management Literature and its Implication for Standard Setting, Accounting Horizons, 13, 365–383. Leuz, C., Nanda, D. and Wysocki, P. D. (2003) Earnings Management and Investor Protection: An International Comparison, Journal of Financial Economics, 69, 505–527. Warfield, T., Wild, J. and Wild, K. (1995) Managerial Ownership, Accounting Choices and Informativeness of Earnings, Journal of Accounting and Economics, 20, 61–91. Park, Y. W. and Shin, H. H. (2004) Board Composition and Earnings Management in Canada, Journal of Corporate Finance, 10, 431–457. Morck, R., Shleifer, A. and Vishny, R. (1988) Management Ownership and Market Valuation: An Empirical Analysis, Journal of Financial Economics, 20, 293–315. Brick, I. E., Palia, D. and Wang, C. J. (2005) Simultaneous Estimation of CEO Compensation, Leverage, and Board haracteristics on Firm Value. Working Paper, SSRN.com Park, Y. W. and Shin, H. H. (2004) Board Composition and Earnings Management in Canada, Journal of Corporate Finance, 10, 431–457. Yeo, G. H. H., Tan, P.,Ho, K.W. and Chen, S. S. (2002) Corporate Ownership Structure and the Informativeness of Earnings, Journal of Business, Finance and Accounting, 29, 1023–1046.

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