Audit Quality and Earnings Management Based on Loan Loss Provisions: Evidence from Iranian Capital Market Banks

Authors

https://doi.org/10.22105/tqfb.v2i1.44

Abstract

This study investigates the relationship between audit quality and earnings management, based on Loan Loss Provisions (LLPs), in 15 active banks listed on the Tehran Stock Exchange from 2010 to 2024. By analyzing data from these sample banks, this study evaluates the impact of various factors on Earnings Management Practices (EMP), including audit firm size, auditor tenure, and auditor specialization in the banking industry. The results indicate a significantly negative relationship between audit firm size and earnings management, suggesting that banks audited by larger firms are less likely to engage in earnings manipulation. Conversely, a positive and significant relationship was found between auditor tenure and earnings management, implying that prolonged auditor-client relationships may lead to a decline in auditor independence, thereby facilitating earnings management. Additionally, auditors with specialized knowledge in the banking sector demonstrate a greater ability to detect and mitigate opportunistic earnings management behaviors, contributing to a reduction in earnings manipulation within these banks.

Keywords:

Audit quality, Earnings management, Bank

References

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Published

2025-01-09

Issue

Vol. 2 No. 1 (2025): Transactions on Quantitative Finance and Beyond

Section

Articles

How to Cite

Kaviani, M., & Jafari, M. (2025). Audit Quality and Earnings Management Based on Loan Loss Provisions: Evidence from Iranian Capital Market Banks. Transactions on Quantitative Finance and Beyond, 2(1), 1-7. https://doi.org/10.22105/tqfb.v2i1.44
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