A study on the relationship between fraud and financial liability of listed companies in Tehran Stock Exchange

Abstract

Financing through liability is a favorable financing option for the Board due to tax savings and its lower rates compared to the expected return on equity. However, the Board is widely motivated for misusing the wealth of shareholders and creditors to protect its own interests. In recent years, various types of financial fraud has caused great concern and has attracted the attentions. Falsification of financial statements, including the manipulation of their constituent elements through overstating assets, sales and profits or understating the liabilities, expenses and loss. Existing studies suggest a direct link between fraud in corporates and the corporates financing options. The aim of this study is to examine the relationship between fraud and financial liability and cash policies. For this purpose, a sample of 120 companies listed in Tehran Stock Exchange has been reviewed for the 5-year period 2009 to 2013. To verify the hypotheses, logistic regression analysis is used. Hypotheses testing results show that there is a significant relationship between the fraud (tax distortions) in financial reporting and financial liability in the corporates. However, there is also no significant relationship between the fraud (financial and tax distortions) in financial reporting and cash holdings in corporates.