Investigating the Effect of Corporate Governance Mechanisms on the Quality of Accounting Profit

Considerable attention given to the issues of corporate governance in recent years shows that the when corporate governance mechanisms are strong, managers find less time to deceive and this consequently increases the quality and reliability of their financial reporting. This research ultimately helps investors to maintain and increase their trust in the capital markets. The current investigation is aimed at investigating the effect of corporate governance mechanisms on the quality of financial reporting through the connection between companies operating ratios and accounting income quality. Centralization of power, the ownership percentage of institutional shareholders and board independence are among the corporate governance mechanisms which have been taken into account in this study. Earnings quality was measured in two ways. Sixty companies were selected as the sample among listed companies in Tehran Stock Exchange during 2006 to 2010. Multiple regressions were used to test the research hypotheses. This study showed that a strong corporate governance system creates a broad vision of the accounting process and it is associated with reported earnings.