The Effect of Companies’ Aggressive Strategy on the Relationship Between Accrual-Based Earnings Management and Bankruptcy Risk
Keywords:
bankruptcy risk, accrual-based earnings management, Aggressive strategyAbstract
Objective: This study aims to examine the moderating role of aggressive business strategy in the relationship between accrual-based earnings management and bankruptcy risk among firms listed on the Tehran Stock Exchange.
Methodology: This applied study employed a descriptive-correlational design. The statistical population consisted of all firms listed on the Tehran Stock Exchange during 2018–2023, from which 187 firms (1,112 firm-year observations) were selected using systematic elimination sampling. Data were extracted from the CODAL database and analyzed using EViews 13. Accrual-based earnings management was measured using the Modified Jones Model, and bankruptcy risk was measured by Altman’s Z-score. Business strategy was classified as aggressive or defensive using four operational indicators and coded as a dummy variable. Panel regression with fixed effects was applied after correcting heteroscedasticity and serial correlation.
Findings: The first model indicated that accrual-based earnings management has a positive and significant effect on bankruptcy risk (β = 0.432, p < 0.001). The second model revealed a positive and significant interaction effect between earnings management and aggressive strategy (β = 0.866, p = 0.001), confirming that aggressive strategy intensifies the impact of earnings management on bankruptcy risk. The adjusted R² of the final model was 0.714.
Conclusion: The findings demonstrate that aggressive business strategies amplify the destabilizing effects of earnings management on corporate financial stability and significantly increase bankruptcy risk.
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