A study on effect of information asymmetry on earning management: evidence from Tehran Stock Exchange

Information asymmetry is a situation in which one party in a transaction has more or superior information compared with another. This often happens in transactions where the seller knows more than the buyer does although the reverse also may happen. Potentially, this could be a harmful circumstance because one party can take advantage of the other party's lack of knowledge. In this paper, we examine the effect of information asymmetry on earning management. To test the research hypotheses, a sample of 47 companies listed in Tehran Stock Exchange over the period 2002-2008 based on panel data was taken. In these models, the presence or absence of effects models (fixed or random) is reviewed and finally the best model is estimated. Inference is based on significant level or p-value, thus likely that any value or significance level of the test is less than 0.05 is rejected at the 95 percent confidence level. The result shows that the information asymmetry has some meaningful effects on earnings management.