The explanation of the effects of political influence on financial opportunistic behaviors in the automotive industry

This study examines the effect of political influence on fraudulent behavior and earnings management in automobile companies listed on the Tehran Stock Exchange and analyzes the moderating role of the audit committee in this regard. The main objective is to determine the extent of the effect of political powers on earnings manipulation and also to examine the ability of the audit committee to reduce these negative effects. In this regard, the effect of three key characteristics of the audit committee, including financial expertise, independence, and size, has been evaluated.

The statistical population of the study included automobile companies active in the Tehran Stock Exchange, of which 30 companies were selected between 2018 and 2023 after applying sampling restrictions. The research method was descriptive-correlational and the data were analyzed using the generalized least squares (GLS) method. This method was selected due to its ability to control variance heterogeneity and autocorrelation in the consolidated data.

The findings show that political influence has a positive and significant effect on both types of earnings management (committed and actual). In other words, companies under stronger political influence are more likely to manipulate earnings. Regarding the moderating role of the audit committee, the results indicate that financial expertise and independence of members can weaken the positive relationship between political influence and accrued earnings management. However, the size of the audit committee did not have a significant moderating effect. Regarding actual earnings management, only the financial expertise of the audit committee was able to moderate the effect of political influence. The results of this study are important in several ways. First, it provides strong evidence about the negative effect of political influence on the quality of financial reporting. Second, it shows that the professional characteristics of the audit committee can reduce these negative effects to some extent. These findings are useful for regulators, investors, and other stakeholders in the capital market and emphasize the importance of strengthening the independence and expertise of audit committees in companies under strong political influence. By filling the research gap in the field of the impact of political factors on earnings management in the automotive industry, the present study will take an important step in the development of literature in this field.