University of Isfahan Financial Accounting Research 2322-3405 17 2 2025 08 23 The Impact of Personality Traits on Investment Decisions: The Mediating Role of Belief about Tail Events, Extrapolative Beliefs, and Expectations The Impact of Personality Traits on Investment Decisions: The Mediating Role of Belief about Tail Events, Extrapolative Beliefs, and Expectations 1 36 30210 10.22108/far.2026.145784.2138 FA Ghazal Sadeghi Yakhdani *: Assistant Professor, Department of Accounting, Faculty of Humanities and Social Sciences, Ardakan University, Ardakan, Iran Zohre Arefmanesh Associate Professor, Department of Accounting, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran Mahdi Shomalie Ahmadabadi PhD in Psychology, Ardakan City Education Department, Ardakan, Iran Journal Article 2025 06 30 In recent years, fluctuations in financial markets and the emergence of various investment options have drawn researchers' attention to the role of investors' psychological characteristics in financial decision-making. This study aimed to examine the impact of personality traits on the willingness to invest in both financial and parallel markets, with behavioral biases (beliefs and expectations) serving as a mediating factor. The study’s statistical sample consisted of 369 active individual investors in 2024. Data was collected using a locally standardized questionnaire and analyzed through structural equation modeling. The results indicated that personality traits influence investors' willingness to invest through their beliefs and expectations. Moreover, beliefs and expectations played a significant mediating role in the relationship between personality characteristics and investment willingness. These findings can help policymakers and financial institutions better understand investor psychology and design financial tools and services that align with investors' behavioral tendencies. Introduction The Efficient Market Hypothesis (EMH) posits that stock prices reflect all available information and that investors act rationally (Fama,1965). In contrast, behavioral finance theories emphasize the role of emotions and irrational behaviors in price determination, arguing that investment decisions are influenced by psychological factors such as personality, beliefs, preferences, and social interactions. These theories suggest that investors often exhibit irrational behavioral patterns (Jiang et al., 2024; Zeynivand et al., 2023). Personality is defined as the unique patterns of thinking, believing, and behaving that characterize each individual (Baker et al., 2021). Research has shown that personality traits influence various aspects of life, including health, academic and professional success, and economic decision-making. It is therefore reasonable to conclude that these traits also affect investment decisions (Becker et al., 2012). Among the various personality theories, the Five-Factor Model, comprising openness, extraversion, neuroticism, agreeableness, and conscientiousness, is widely accepted and reflects consistent patterns in individuals' thoughts and emotions (Akhtar et al., 2018; Costa & Mccrae, 1992). Investors' expectations and beliefs represent their overall attitudes toward the financial market (Baker & Wurgler, 2007). Previous research has demonstrated a direct link between investors’ expectations and beliefs and their decision-making processes (Haritha & Uchil, 2020). Empirical findings indicate that these factors significantly influence individual investors, affecting how they evaluate opportunities and risks (Jiang et al., 2024; Kamath et al., 2023). According to the theoretical framework proposed by Jiang et al. (2024), investors' beliefs can be examined across three fundamental dimensions: optimistic or pessimistic expectations, beliefs about tail events, and extrapolative beliefs regarding financial markets and economic conditions. Optimistic or pessimistic expectations refer to an investor’s outlook on the likelihood of positive or negative events in the market. Excessive optimism or pessimism can lead to exaggerated assessments of an investment’s potential, resulting in unrealistic evaluations of risk and return. For example, optimistic individuals may believe in their ability to outperform the market, making them more inclined to invest in high-risk assets. Beliefs about tail events reflect investors' tendencies to overestimate the likelihood of rare but impactful events. Such beliefs can lead to skewed risk assessments and result in either overly aggressive or overly conservative investment behaviors, depending on whether the outlook is excessively optimistic or pessimistic. Extrapolative beliefs describe the inclination to project past market trends into the future, even without sufficient justification. Investors with this mindset assume that current trends will persist, often ignoring the potential for sudden reversals. This cognitive bias can lead individuals to pursue high-risk investments under the assumption that upward trends will continue. Awareness of these three belief dimensions is essential for understanding investor behavior and designing more effective investment strategies. Given the significance of the factors outlined above, the primary objective of this research is to examine the impact of personality traits on investment decisions and to explore the mediating role of beliefs about tail events, extrapolative beliefs, and investors' expectations in this relationship. A more comprehensive exploration of these interrelationships may yield deeper insights into investors’ decision-making processes. The central research question is: Do investors’ beliefs about the market and economic conditions mediate the relationship between personality traits and investment decisions? Methodology To test the hypotheses and collect research data, a 32-item standardized questionnaire, adapted from the study by Jiang et al. (2024), was used. The questionnaire consisted of sections designed to measure personality traits, investor beliefs in three areas—expectations, belief in extreme events, and beliefs about extraversion—as well as investment decisions across five different market types. The statistical population for this research included all active individual investors in financial and parallel markets. Given the broad scope of the population and the lack of precise statistics, the sample size was determined using the method outlined in Hooman’s (2014) research, as shown in Relation (1): Relation (1) 5q ≤ n ≤ 15q Where q is the number of items in the questionnaire, and n is the sample size. Since the questionnaire in this study contained 32 items, 600 questionnaires were distributed via email, social media, and in person to meet the sample size threshold. After several months, 397 questionnaires were returned. Of these, 28 were discarded due to incomplete answers or responses to the “I prefer not to answer” option. Finally, considering the limitations in accessing the statistical population, the analysis was conducted using data from the remaining 369 completed questionnaires. The collected data were analyzed using descriptive statistics (via SPSS software) to present demographic information and inferential statistics (via Structural Equation Modeling with Partial Least Squares approach and AMOS software). Findings The results showed that extremist beliefs, extrapolative beliefs, and investor expectations had a positive and significant effect on investment decisions. Among the personality traits, extraversion had a positive and significant effect, while conscientiousness had a negative and significant effect on extremist beliefs. Openness to experience, on the other hand, had a negative and significant effect on investor expectations. Additionally, the trait of openness to experience positively and significantly influenced real estate investment decisions; agreeableness had a positive and significant effect on stock investment decisions, extraversion negatively and significantly affected all investment decisions, conscientiousness had a positive and significant effect on investment decisions in cryptocurrencies, gold, jewelry, and banking, and neuroticism negatively and significantly affected cryptocurrency investment decisions. The results also indicated that extremist beliefs mediated the relationship between extraversion and conscientiousness and all investment decisions. Extrapolative beliefs mediated the relationship between openness to experience, extraversion, and investment decisions in cryptocurrencies, gold, and banking. Finally, investor expectations mediated the relationship between openness to experience and all investment decisions. Conclusion and Implications The findings of this research suggest that individuals with stronger beliefs about tail events, more pronounced extrapolative beliefs, and more optimistic expectations are generally more inclined to invest. In contrast, individuals with higher levels of extraversion and lower levels of conscientiousness are more likely to hold strong beliefs about tail events, while those with lower openness to experience tend to have more optimistic expectations. The results also indicate that individuals high in openness to experience prefer to invest in long-term, relatively low-risk assets, such as real estate. In contrast, agreeable individuals are more inclined toward high-risk assets like stocks, while those high in extraversion generally exhibit a lower overall propensity to invest. Additionally, neurotic individuals tend to avoid high-risk investments, such as digital currencies, whereas conscientious individuals demonstrate a strong preference for low-risk assets like banks and gold. By highlighting the psychological and behavioral factors that influence investment decisions, these findings emphasize the growing significance of behavioral concepts in capital markets. They can help policymakers and financial institutions gain a deeper understanding of investor psychology and design financial instruments and products tailored to various personality profiles and social needs. Based on these insights, companies and organizations in financial services and investment advisory can benefit from incorporating behavioral biases—such as investors' expectations and beliefs—into their frameworks to improve the quality of financial guidance. Overall, the results of this study contribute to the development of more sophisticated and accurate models for predicting investor behavior. These models can enhance investment decision-making, inform the design of financial products suited to diverse personality traits and social contexts, and support more effective educational and advisory strategies that integrate key behavioral factors into profit-oriented investment planning. In recent years, fluctuations in financial markets and the emergence of various investment options have drawn researchers' attention to the role of investors' psychological characteristics in financial decision-making. This study aimed to examine the impact of personality traits on the willingness to invest in both financial and parallel markets, with behavioral biases (beliefs and expectations) serving as a mediating factor. The study’s statistical sample consisted of 369 active individual investors in 2024. Data was collected using a locally standardized questionnaire and analyzed through structural equation modeling. The results indicated that personality traits influence investors' willingness to invest through their beliefs and expectations. Moreover, beliefs and expectations played a significant mediating role in the relationship between personality characteristics and investment willingness. These findings can help policymakers and financial institutions better understand investor psychology and design financial tools and services that align with investors' behavioral tendencies. Introduction The Efficient Market Hypothesis (EMH) posits that stock prices reflect all available information and that investors act rationally (Fama,1965). In contrast, behavioral finance theories emphasize the role of emotions and irrational behaviors in price determination, arguing that investment decisions are influenced by psychological factors such as personality, beliefs, preferences, and social interactions. These theories suggest that investors often exhibit irrational behavioral patterns (Jiang et al., 2024; Zeynivand et al., 2023). Personality is defined as the unique patterns of thinking, believing, and behaving that characterize each individual (Baker et al., 2021). Research has shown that personality traits influence various aspects of life, including health, academic and professional success, and economic decision-making. It is therefore reasonable to conclude that these traits also affect investment decisions (Becker et al., 2012). Among the various personality theories, the Five-Factor Model, comprising openness, extraversion, neuroticism, agreeableness, and conscientiousness, is widely accepted and reflects consistent patterns in individuals' thoughts and emotions (Akhtar et al., 2018; Costa & Mccrae, 1992). Investors' expectations and beliefs represent their overall attitudes toward the financial market (Baker & Wurgler, 2007). Previous research has demonstrated a direct link between investors’ expectations and beliefs and their decision-making processes (Haritha & Uchil, 2020). Empirical findings indicate that these factors significantly influence individual investors, affecting how they evaluate opportunities and risks (Jiang et al., 2024; Kamath et al., 2023). According to the theoretical framework proposed by Jiang et al. (2024), investors' beliefs can be examined across three fundamental dimensions: optimistic or pessimistic expectations, beliefs about tail events, and extrapolative beliefs regarding financial markets and economic conditions. Optimistic or pessimistic expectations refer to an investor’s outlook on the likelihood of positive or negative events in the market. Excessive optimism or pessimism can lead to exaggerated assessments of an investment’s potential, resulting in unrealistic evaluations of risk and return. For example, optimistic individuals may believe in their ability to outperform the market, making them more inclined to invest in high-risk assets. Beliefs about tail events reflect investors' tendencies to overestimate the likelihood of rare but impactful events. Such beliefs can lead to skewed risk assessments and result in either overly aggressive or overly conservative investment behaviors, depending on whether the outlook is excessively optimistic or pessimistic. Extrapolative beliefs describe the inclination to project past market trends into the future, even without sufficient justification. Investors with this mindset assume that current trends will persist, often ignoring the potential for sudden reversals. This cognitive bias can lead individuals to pursue high-risk investments under the assumption that upward trends will continue. Awareness of these three belief dimensions is essential for understanding investor behavior and designing more effective investment strategies. Given the significance of the factors outlined above, the primary objective of this research is to examine the impact of personality traits on investment decisions and to explore the mediating role of beliefs about tail events, extrapolative beliefs, and investors' expectations in this relationship. A more comprehensive exploration of these interrelationships may yield deeper insights into investors’ decision-making processes. The central research question is: Do investors’ beliefs about the market and economic conditions mediate the relationship between personality traits and investment decisions? Methodology To test the hypotheses and collect research data, a 32-item standardized questionnaire, adapted from the study by Jiang et al. (2024), was used. The questionnaire consisted of sections designed to measure personality traits, investor beliefs in three areas—expectations, belief in extreme events, and beliefs about extraversion—as well as investment decisions across five different market types. The statistical population for this research included all active individual investors in financial and parallel markets. Given the broad scope of the population and the lack of precise statistics, the sample size was determined using the method outlined in Hooman’s (2014) research, as shown in Relation (1): Relation (1) 5q ≤ n ≤ 15q Where q is the number of items in the questionnaire, and n is the sample size. Since the questionnaire in this study contained 32 items, 600 questionnaires were distributed via email, social media, and in person to meet the sample size threshold. After several months, 397 questionnaires were returned. Of these, 28 were discarded due to incomplete answers or responses to the “I prefer not to answer” option. Finally, considering the limitations in accessing the statistical population, the analysis was conducted using data from the remaining 369 completed questionnaires. The collected data were analyzed using descriptive statistics (via SPSS software) to present demographic information and inferential statistics (via Structural Equation Modeling with Partial Least Squares approach and AMOS software). Findings The results showed that extremist beliefs, extrapolative beliefs, and investor expectations had a positive and significant effect on investment decisions. Among the personality traits, extraversion had a positive and significant effect, while conscientiousness had a negative and significant effect on extremist beliefs. Openness to experience, on the other hand, had a negative and significant effect on investor expectations. Additionally, the trait of openness to experience positively and significantly influenced real estate investment decisions; agreeableness had a positive and significant effect on stock investment decisions, extraversion negatively and significantly affected all investment decisions, conscientiousness had a positive and significant effect on investment decisions in cryptocurrencies, gold, jewelry, and banking, and neuroticism negatively and significantly affected cryptocurrency investment decisions. The results also indicated that extremist beliefs mediated the relationship between extraversion and conscientiousness and all investment decisions. Extrapolative beliefs mediated the relationship between openness to experience, extraversion, and investment decisions in cryptocurrencies, gold, and banking. Finally, investor expectations mediated the relationship between openness to experience and all investment decisions. Conclusion and Implications The findings of this research suggest that individuals with stronger beliefs about tail events, more pronounced extrapolative beliefs, and more optimistic expectations are generally more inclined to invest. In contrast, individuals with higher levels of extraversion and lower levels of conscientiousness are more likely to hold strong beliefs about tail events, while those with lower openness to experience tend to have more optimistic expectations. The results also indicate that individuals high in openness to experience prefer to invest in long-term, relatively low-risk assets, such as real estate. In contrast, agreeable individuals are more inclined toward high-risk assets like stocks, while those high in extraversion generally exhibit a lower overall propensity to invest. Additionally, neurotic individuals tend to avoid high-risk investments, such as digital currencies, whereas conscientious individuals demonstrate a strong preference for low-risk assets like banks and gold. By highlighting the psychological and behavioral factors that influence investment decisions, these findings emphasize the growing significance of behavioral concepts in capital markets. They can help policymakers and financial institutions gain a deeper understanding of investor psychology and design financial instruments and products tailored to various personality profiles and social needs. Based on these insights, companies and organizations in financial services and investment advisory can benefit from incorporating behavioral biases—such as investors' expectations and beliefs—into their frameworks to improve the quality of financial guidance. Overall, the results of this study contribute to the development of more sophisticated and accurate models for predicting investor behavior. These models can enhance investment decision-making, inform the design of financial products suited to diverse personality traits and social contexts, and support more effective educational and advisory strategies that integrate key behavioral factors into profit-oriented investment planning.

https://far.ui.ac.ir/article_30210_754a868026138763bbc0ff76e4d97713.pdf

University of Isfahan Financial Accounting Research 2322-3405 17 2 2025 08 23 Examining the Impact of CEO Media Coverage on Firm Value: The Mediating Role of Cash Holdings Examining the Impact of CEO Media Coverage on Firm Value: The Mediating Role of Cash Holdings 37 66 30061 10.22108/far.2025.146054.2144 FA Mahdi Saghafi Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran. Journal Article 2025 07 21 CEO media coverage serves not only as a means of disseminating information to stakeholders but also as an external monitoring mechanism that can influence managerial performance and affect firm value. Accordingly, the present study aims to examine the impact of CEO media coverage on firm value, with an emphasis on the mediating role of cash holdings. To test the research hypotheses, panel data from 149 firms listed on the Iranian Stock Exchange and OTC over a 10-year period (2014–2023) were utilized. The models were estimated using multivariate regression analysis. The findings indicate that CEO media coverage has a positive and significant effect on both firm value and cash holdings. Additionally, cash holdings positively influence firm value. Ultimately, cash holdings mediate the relationship between CEO media coverage and firm value. The results of this study offer a novel perspective on the critical role of media in shaping firm value, suggesting that CEOs who receive greater media exposure tend to hold more cash within the firm to preserve their reputation and mitigate potential consequences of media-released information. Introduction According to the Efficient Market Hypothesis (EMH), information in the market continuously guides prices toward rational levels and mitigates the impact of irrational behavior in financial markets, highlighting the critical role of information. The media is considered one of the information hubs of the capital market because it collects, analyzes, and reports news and data related to a company and the market in general. In fact, media coverage of companies serves as an important information source for investors, especially small investors who are looking for relevant information in the financial market. One key channel of communication between firms and stakeholders is the media. Based on agency theory, it is argued that extensive media coverage can influence managerial behavior. Given that one of the most important financial management tasks is maintaining an optimal level of cash holdings, it is expected that media coverage affects managers' decisions regarding cash retention. Moreover, according to trade-off theory, pecking order theory, and behavioral theory, managers tend to retain higher levels of cash within the firm. Cash holdings can reduce financing costs, enhance investment efficiency, decrease financial risk, and signal positive information to the market, ultimately contributing to firm value. Therefore, CEO media coverage not only serves as a tool for disseminating information to stakeholders but also acts as an external monitoring mechanism that influences managerial performance and impacts firm value. To address existing gaps in the literature regarding the role of media coverage on firm value—and the previously overlooked mediating role of cash holdings—this study analyzes two key determinants of firm value. It is the first study to examine the effect of CEO media coverage on firm value with a focus on the mediating role of cash holdings, thereby expanding the existing body of knowledge in this domain. Methodology This study is applied in purpose and descriptive-correlational in methodology, falling under the category of ex post facto research. To test the research hypotheses, panel data from 149 companies listed on the Iranian Stock Exchange and OTC were collected over 10 years from 2014 to 2023. For inferential statistics, multivariate panel regression models were employed using Stata version 15. Additionally, the Sobel test (via an online tool) was used to examine the fourth hypothesis due to the presence of a mediating variable. Based on the theoretical framework and literature review, the following models were used to test the research hypotheses. First hypothesis model: First hypothesis model: Third hypothesis model: To achieve the main objective and the fourth hypothesis of the research, using regression models in the first to third hypotheses of the research and obtaining path coefficients, the mediation role of cash holdings is tested using the Sobel test. Findings The estimation results from the multivariate regression models indicate that CEO media coverage has a positive impact on firm value. This suggests that shareholders base their investment decisions on media-reported news. Furthermore, CEO media coverage leads to higher levels of corporate cash holdings. This finding implies that such coverage is associated with more conservative financial policies, including higher cash retention, and that media monitoring acts as an external governance mechanism. By exerting pressure on managers to avoid high-risk decisions, media scrutiny strengthens financial flexibility. In addition, cash holdings themselves have a positive effect on firm value, as they help reduce financing costs, improve investment efficiency, decrease financial risk, and send positive signals to the market—ultimately enhancing firm value. Thus, CEO media coverage not only informs the market but also serves as a driver of corporate financial policy. It can directly influence firm value through its effect on cash holdings. Conclusion and Implications This study offers a novel perspective on the significant role of media in influencing firm value. The findings suggest that managers who receive more media attention tend to retain more cash within the company to preserve their reputation and avoid potential negative consequences from media exposure. Accordingly, the research highlights the importance of media coverage as an external control mechanism that mitigates managerial behavior regarding cash holdings and firm value. The results contribute to the existing literature on media coverage and firm value and provide useful insights for policymakers, investors, and other stakeholders. CEO media coverage serves not only as a means of disseminating information to stakeholders but also as an external monitoring mechanism that can influence managerial performance and affect firm value. Accordingly, the present study aims to examine the impact of CEO media coverage on firm value, with an emphasis on the mediating role of cash holdings. To test the research hypotheses, panel data from 149 firms listed on the Iranian Stock Exchange and OTC over a 10-year period (2014–2023) were utilized. The models were estimated using multivariate regression analysis. The findings indicate that CEO media coverage has a positive and significant effect on both firm value and cash holdings. Additionally, cash holdings positively influence firm value. Ultimately, cash holdings mediate the relationship between CEO media coverage and firm value. The results of this study offer a novel perspective on the critical role of media in shaping firm value, suggesting that CEOs who receive greater media exposure tend to hold more cash within the firm to preserve their reputation and mitigate potential consequences of media-released information. Introduction According to the Efficient Market Hypothesis (EMH), information in the market continuously guides prices toward rational levels and mitigates the impact of irrational behavior in financial markets, highlighting the critical role of information. The media is considered one of the information hubs of the capital market because it collects, analyzes, and reports news and data related to a company and the market in general. In fact, media coverage of companies serves as an important information source for investors, especially small investors who are looking for relevant information in the financial market. One key channel of communication between firms and stakeholders is the media. Based on agency theory, it is argued that extensive media coverage can influence managerial behavior. Given that one of the most important financial management tasks is maintaining an optimal level of cash holdings, it is expected that media coverage affects managers' decisions regarding cash retention. Moreover, according to trade-off theory, pecking order theory, and behavioral theory, managers tend to retain higher levels of cash within the firm. Cash holdings can reduce financing costs, enhance investment efficiency, decrease financial risk, and signal positive information to the market, ultimately contributing to firm value. Therefore, CEO media coverage not only serves as a tool for disseminating information to stakeholders but also acts as an external monitoring mechanism that influences managerial performance and impacts firm value. To address existing gaps in the literature regarding the role of media coverage on firm value—and the previously overlooked mediating role of cash holdings—this study analyzes two key determinants of firm value. It is the first study to examine the effect of CEO media coverage on firm value with a focus on the mediating role of cash holdings, thereby expanding the existing body of knowledge in this domain. Methodology This study is applied in purpose and descriptive-correlational in methodology, falling under the category of ex post facto research. To test the research hypotheses, panel data from 149 companies listed on the Iranian Stock Exchange and OTC were collected over 10 years from 2014 to 2023. For inferential statistics, multivariate panel regression models were employed using Stata version 15. Additionally, the Sobel test (via an online tool) was used to examine the fourth hypothesis due to the presence of a mediating variable. Based on the theoretical framework and literature review, the following models were used to test the research hypotheses. First hypothesis model: First hypothesis model: Third hypothesis model: To achieve the main objective and the fourth hypothesis of the research, using regression models in the first to third hypotheses of the research and obtaining path coefficients, the mediation role of cash holdings is tested using the Sobel test. Findings The estimation results from the multivariate regression models indicate that CEO media coverage has a positive impact on firm value. This suggests that shareholders base their investment decisions on media-reported news. Furthermore, CEO media coverage leads to higher levels of corporate cash holdings. This finding implies that such coverage is associated with more conservative financial policies, including higher cash retention, and that media monitoring acts as an external governance mechanism. By exerting pressure on managers to avoid high-risk decisions, media scrutiny strengthens financial flexibility. In addition, cash holdings themselves have a positive effect on firm value, as they help reduce financing costs, improve investment efficiency, decrease financial risk, and send positive signals to the market—ultimately enhancing firm value. Thus, CEO media coverage not only informs the market but also serves as a driver of corporate financial policy. It can directly influence firm value through its effect on cash holdings. Conclusion and Implications This study offers a novel perspective on the significant role of media in influencing firm value. The findings suggest that managers who receive more media attention tend to retain more cash within the company to preserve their reputation and avoid potential negative consequences from media exposure. Accordingly, the research highlights the importance of media coverage as an external control mechanism that mitigates managerial behavior regarding cash holdings and firm value. The results contribute to the existing literature on media coverage and firm value and provide useful insights for policymakers, investors, and other stakeholders.

https://far.ui.ac.ir/article_30061_67c153cafbe06643b3b39afa92e8658e.pdf

University of Isfahan Financial Accounting Research 2322-3405 17 2 2025 08 23 Examining the Relationship Between the Elements of the Fraud Hexagon and Fraudulent Financial Reporting Examining the Relationship Between the Elements of the Fraud Hexagon and Fraudulent Financial Reporting 67 108 30224 10.22108/far.2026.147680.2195 FA Mohammadhosein Setayesh Professor, Department of Accounting, School of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran. Marzieh Yousefinejad Ph.D. Student, Department of Accounting, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran Mina Sadeghi PhD student, Department of Accounting, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran Journal Article 2025 12 04 The present study seeks to identify the relationships between fraud hexagon elements of fraud and fraudulent financial reporting. In order to achieve this goal, data related to companies listed on the Tehran Stock Exchange during the years 2014 to 2019 were analyzed using logistic regression using SPSS software, and sixteen hypotheses were designed. The results of the hypothesis testing showed that there is a positive and significant relationship between the elements of pressure (financial stability, predetermined goals, and financial needs of managers), opportunity (nature of the industry), rationalization (change of auditor and accrual ratio), ability (restatement of financial statements and earnings management), and collusion (market performance) with fraudulent financial reporting, and the variables of efficient supervision (opportunity) and auditor's opinion (rationalization) have a negative and significant relationship with fraudulent financial reporting. Also, the element of arrogance (CEO ambivalence and stock price changes) and the variables of external pressure (pressure), CEO change (ability), and related party transactions (collusion) have no significant relationship with fraudulent financial reporting. The results of the study indicate that the elements of pressure, opportunity, rationalization, ability, and collusion have a significant relationship with fraudulent financial reporting, and this result can be a basis for developing mechanisms to reduce fraudulent financial reporting and prevent its occurrence. Introduction Financial reports provide an overview of the economic performance of an organizational unit over a given period, and are therefore the most important source of information about the financial position, financial performance, and cash flow of a business unit (Setiana & Dewi, 2024). Such reports and the figures contained in them are considered a communication link between companies and users to convey an accurate and fair picture of the company's current situation and prospects (Samuel et al., 2023), and are also considered a criterion for measuring the efficiency and effectiveness of the company to make appropriate economic decisions by stakeholders (Yulianti et al., 2024). With these interpretations, the higher the quality of information published in financial statements, the more desirable the decisions made will be, preventing the waste of scarce economic resources and developing and improving social welfare, and ultimately the economic growth of the country (Naderi et al., 2022). Sometimes, when faced with critical situations and liquidity problems, company managers are encouraged to manipulate financial statements to maintain performance expectations and attract financial resources into the company; because, according to the theory of managerial ambiguity, in adverse conditions, managers have the necessary motivation to present the information published in financial statements in an opaque and manipulated manner to hide poor performance (Li, 2008). The expansion of the capital market in Iran and the relative increase in fraud cases in financial statements and their destructive effects indicate a strong need to conduct research in the field of identifying the effective factors of fraudulent financial reporting, and discovering, predicting, and preventing such reports. Therefore, the present study seeks to answer the following questions: Does the hexagon theory of fraud have a significant relationship with fraudulent financial reporting? Do the elements of the hexagon theory of fraud, including pressure, opportunity, justification, ability, arrogance, and collusion, have a significant relationship with fraudulent financial reporting? Considering the presented material, the main goal of the present study is to identify the relationships between the fraud hexagon and fraudulent financial reporting in companies listed on the Tehran Stock Exchange during the period 2015 to 2024, using the Benish fraud model to identify and distinguish fraudulent from non-fraudulent companies, using the logistic regression method. Methodology The present study is exploratory in nature, as it seeks to discover the relationships between the six elements of fraud and fraudulent financial reporting, and is classified as applied research considering the motivation and purpose of the research. Also, in terms of methodology, it is an experimental research with a post-event design and is in the field of accounting positivist research, because the data of audited financial statements and accompanying notes of companies are used to conduct the research, which were collected by referring to the Tehran Stock Exchange website and the database of the new Rahavard software. To analyze the data in the period from 2015 to 2024, the research variables were prepared using Excel software from raw data, and then, in order to prove the existing relationships between the six elements of fraud and fraudulent financial reporting, SPSS version 27 software will be used with the help of logistic regression. Finding Given that the dependent variable of the study (fraudulent financial reporting) is a dichotomous variable, logistic regression analysis was used to examine the research topic in detail, which shows that among the pressure indicators, the variables of asset turnover ratio (financial stability), return on assets (financial objectives), and management shares (financial needs of managers) have a significance level of less than 0.05, thus confirming their positive and significant relationship with fraudulent financial reporting. However, the significance level of financial leverage (external pressure) is greater than 0.05, and therefore, the existence of a positive relationship between financial leverage and fraudulent financial reporting is not confirmed. Therefore, the first, second, and fourth hypotheses of the study are accepted at a 95% confidence level, and the third hypothesis is rejected. Regarding opportunity indicators, the results show that the significance level of both variables, the ratio of changes in accounts receivable (nature of the industry) and the percentage of independence of board members (efficient and effective supervision), is less than 0.05. Therefore, the existence of a positive and significant relationship between the variable nature of the industry and fraudulent financial reporting, as well as the existence of a negative and significant relationship between effective supervision and fraudulent financial reporting, is confirmed, and subsequently, the fifth and sixth hypotheses of the research are accepted. Regarding the rationalization indices, the results show that the significance level for the variables of auditor's opinion and the ratio of accruals to total assets is less than 0.05, and for the variable of auditor change is less than 0.1. Therefore, the existence of a negative and significant relationship between the variable of auditor's opinion and fraudulent financial reporting, as well as the existence of a positive and significant relationship between the ratio of accruals and fraudulent financial reporting, was confirmed at a 95% confidence level, and the positive and significant relationship between the variable of auditor change and fraudulent financial reporting was also confirmed at a 90% confidence level. Therefore, the seventh hypothesis is accepted at a 90% confidence level, and the eighth and ninth hypotheses are also accepted at a 95% confidence level. Regarding the ability indicators, the results show that the significance level for the variables of financial statement restatement and earnings management is less than 0.05. Therefore, the existence of a positive and significant relationship between the variables of financial statement restatement and earnings management with fraudulent financial reporting is confirmed. However, considering the significance level of the CEO change variable, which is greater than 0.05, it can be concluded that the existence of a positive and significant relationship between the CEO change variable and fraudulent financial reporting is not confirmed. Therefore, the eleventh and twelfth hypotheses are accepted, and the tenth hypothesis is also rejected. The results related to the arrogance indicators show that the significance level of none of the CEO duality and stock price changes variables is less than 0.05, so the arrogance element (CEO duality and stock price changes) has no significant relationship with fraudulent financial reporting, so the thirteenth and fourteenth hypotheses of the study are rejected. Finally, regarding the collusion indicators, the results show that the significance level of the ratio of market value to book value of each share is less than 0.05, so the existence of a positive and significant relationship between the market performance variable and fraudulent financial reporting is confirmed, but given the significance level of related party transactions, which is greater than 0.05, the existence of a positive and significant relationship between the related party transactions variable and fraudulent financial reporting is not confirmed. Accordingly, the fifteenth hypothesis is accepted, and the sixteenth hypothesis is also rejected. Conclusion The results of implementing logistic regression showed that the first hypothesis, that there is a positive and significant relationship between the financial stability variable and fraudulent financial reporting, was confirmed, which indicates that financial stability, measured by the ratio of changes in total assets, has a positive and significant effect on fraudulent financial reporting. The second hypothesis of the study, that there is a positive and significant relationship between predetermined goals and fraudulent financial reporting, was confirmed, which indicates that there is a positive and significant relationship between the rate of return on assets and fraudulent financial reporting. The results obtained from testing the third hypothesis could not confirm the relationship between the financial leverage variable and fraudulent financial reporting. The results of testing the fourth hypothesis showed that the financial need of managers (management shares) has a positive and significant relationship with fraudulent financial reporting. The findings from the fifth hypothesis test showed that the industry nature variable has a positive and significant relationship with fraudulent financial reporting. The results of the sixth hypothesis test showed that there is a negative and significant relationship between the efficient supervision variable and fraudulent financial reporting. The results of the seventh hypothesis test, which stated that there is a positive and significant relationship between auditor change and fraudulent financial reporting, were confirmed with a confidence level of 90%. The test of the eighth hypothesis regarding the existence of a relationship between the acceptable opinion variable and fraudulent financial reporting indicates the existence of a negative and significant relationship between these two variables, which is in line with the agency theory. The result of the test of the ninth hypothesis confirmed the claim regarding the existence of a positive and significant relationship between the accruals ratio and fraudulent financial reporting, meaning that this ratio can create an opportunity for management to manipulate financial statements, especially in terms of income. The test of the tenth hypothesis regarding the existence of a positive and significant relationship between the CEO change variable and fraudulent financial reporting resulted in the rejection of the hypothesis. The examination of the relationship between the financial statement restatement ratio and fraudulent financial reporting indicates the existence of a positive and significant relationship between these two variables, which confirms the eleventh hypothesis. Regarding the existence of a relationship between the earnings management variable and fraudulent financial reporting, the test results showed that there is a positive and significant relationship between them, which leads to the confirmation of the twelfth hypothesis. The test of the thirteenth and fourteenth hypotheses failed to confirm these two hypotheses and showed that the variables of CEO duality and stock price changes have no significant relationship with fraudulent financial reporting, which is contrary to the agency theory that states that the element of arrogance has no significant relationship with fraudulent financial reporting. The fifteenth hypothesis, based on the existence of a positive and significant relationship between the market performance variable and fraudulent financial reporting, was confirmed. Finally, the sixteenth hypothesis, based on the existence of a positive and significant relationship between the related party transaction variable and fraudulent financial reporting, was not confirmed. Considering the results and limitations of the study, it is suggested that researchers use other fraud measurement models to identify and distinguish fraudulent from non-fraudulent companies or use a larger number of variables to identify each of the hexagonal elements of fraud with the help of new models and techniques such as machine learning, neural networks, and mathematical algorithms. The present study seeks to identify the relationships between fraud hexagon elements of fraud and fraudulent financial reporting. In order to achieve this goal, data related to companies listed on the Tehran Stock Exchange during the years 2014 to 2019 were analyzed using logistic regression using SPSS software, and sixteen hypotheses were designed. The results of the hypothesis testing showed that there is a positive and significant relationship between the elements of pressure (financial stability, predetermined goals, and financial needs of managers), opportunity (nature of the industry), rationalization (change of auditor and accrual ratio), ability (restatement of financial statements and earnings management), and collusion (market performance) with fraudulent financial reporting, and the variables of efficient supervision (opportunity) and auditor's opinion (rationalization) have a negative and significant relationship with fraudulent financial reporting. Also, the element of arrogance (CEO ambivalence and stock price changes) and the variables of external pressure (pressure), CEO change (ability), and related party transactions (collusion) have no significant relationship with fraudulent financial reporting. The results of the study indicate that the elements of pressure, opportunity, rationalization, ability, and collusion have a significant relationship with fraudulent financial reporting, and this result can be a basis for developing mechanisms to reduce fraudulent financial reporting and prevent its occurrence. Introduction Financial reports provide an overview of the economic performance of an organizational unit over a given period, and are therefore the most important source of information about the financial position, financial performance, and cash flow of a business unit (Setiana & Dewi, 2024). Such reports and the figures contained in them are considered a communication link between companies and users to convey an accurate and fair picture of the company's current situation and prospects (Samuel et al., 2023), and are also considered a criterion for measuring the efficiency and effectiveness of the company to make appropriate economic decisions by stakeholders (Yulianti et al., 2024). With these interpretations, the higher the quality of information published in financial statements, the more desirable the decisions made will be, preventing the waste of scarce economic resources and developing and improving social welfare, and ultimately the economic growth of the country (Naderi et al., 2022). Sometimes, when faced with critical situations and liquidity problems, company managers are encouraged to manipulate financial statements to maintain performance expectations and attract financial resources into the company; because, according to the theory of managerial ambiguity, in adverse conditions, managers have the necessary motivation to present the information published in financial statements in an opaque and manipulated manner to hide poor performance (Li, 2008). The expansion of the capital market in Iran and the relative increase in fraud cases in financial statements and their destructive effects indicate a strong need to conduct research in the field of identifying the effective factors of fraudulent financial reporting, and discovering, predicting, and preventing such reports. Therefore, the present study seeks to answer the following questions: Does the hexagon theory of fraud have a significant relationship with fraudulent financial reporting? Do the elements of the hexagon theory of fraud, including pressure, opportunity, justification, ability, arrogance, and collusion, have a significant relationship with fraudulent financial reporting? Considering the presented material, the main goal of the present study is to identify the relationships between the fraud hexagon and fraudulent financial reporting in companies listed on the Tehran Stock Exchange during the period 2015 to 2024, using the Benish fraud model to identify and distinguish fraudulent from non-fraudulent companies, using the logistic regression method. Methodology The present study is exploratory in nature, as it seeks to discover the relationships between the six elements of fraud and fraudulent financial reporting, and is classified as applied research considering the motivation and purpose of the research. Also, in terms of methodology, it is an experimental research with a post-event design and is in the field of accounting positivist research, because the data of audited financial statements and accompanying notes of companies are used to conduct the research, which were collected by referring to the Tehran Stock Exchange website and the database of the new Rahavard software. To analyze the data in the period from 2015 to 2024, the research variables were prepared using Excel software from raw data, and then, in order to prove the existing relationships between the six elements of fraud and fraudulent financial reporting, SPSS version 27 software will be used with the help of logistic regression. Finding Given that the dependent variable of the study (fraudulent financial reporting) is a dichotomous variable, logistic regression analysis was used to examine the research topic in detail, which shows that among the pressure indicators, the variables of asset turnover ratio (financial stability), return on assets (financial objectives), and management shares (financial needs of managers) have a significance level of less than 0.05, thus confirming their positive and significant relationship with fraudulent financial reporting. However, the significance level of financial leverage (external pressure) is greater than 0.05, and therefore, the existence of a positive relationship between financial leverage and fraudulent financial reporting is not confirmed. Therefore, the first, second, and fourth hypotheses of the study are accepted at a 95% confidence level, and the third hypothesis is rejected. Regarding opportunity indicators, the results show that the significance level of both variables, the ratio of changes in accounts receivable (nature of the industry) and the percentage of independence of board members (efficient and effective supervision), is less than 0.05. Therefore, the existence of a positive and significant relationship between the variable nature of the industry and fraudulent financial reporting, as well as the existence of a negative and significant relationship between effective supervision and fraudulent financial reporting, is confirmed, and subsequently, the fifth and sixth hypotheses of the research are accepted. Regarding the rationalization indices, the results show that the significance level for the variables of auditor's opinion and the ratio of accruals to total assets is less than 0.05, and for the variable of auditor change is less than 0.1. Therefore, the existence of a negative and significant relationship between the variable of auditor's opinion and fraudulent financial reporting, as well as the existence of a positive and significant relationship between the ratio of accruals and fraudulent financial reporting, was confirmed at a 95% confidence level, and the positive and significant relationship between the variable of auditor change and fraudulent financial reporting was also confirmed at a 90% confidence level. Therefore, the seventh hypothesis is accepted at a 90% confidence level, and the eighth and ninth hypotheses are also accepted at a 95% confidence level. Regarding the ability indicators, the results show that the significance level for the variables of financial statement restatement and earnings management is less than 0.05. Therefore, the existence of a positive and significant relationship between the variables of financial statement restatement and earnings management with fraudulent financial reporting is confirmed. However, considering the significance level of the CEO change variable, which is greater than 0.05, it can be concluded that the existence of a positive and significant relationship between the CEO change variable and fraudulent financial reporting is not confirmed. Therefore, the eleventh and twelfth hypotheses are accepted, and the tenth hypothesis is also rejected. The results related to the arrogance indicators show that the significance level of none of the CEO duality and stock price changes variables is less than 0.05, so the arrogance element (CEO duality and stock price changes) has no significant relationship with fraudulent financial reporting, so the thirteenth and fourteenth hypotheses of the study are rejected. Finally, regarding the collusion indicators, the results show that the significance level of the ratio of market value to book value of each share is less than 0.05, so the existence of a positive and significant relationship between the market performance variable and fraudulent financial reporting is confirmed, but given the significance level of related party transactions, which is greater than 0.05, the existence of a positive and significant relationship between the related party transactions variable and fraudulent financial reporting is not confirmed. Accordingly, the fifteenth hypothesis is accepted, and the sixteenth hypothesis is also rejected. Conclusion The results of implementing logistic regression showed that the first hypothesis, that there is a positive and significant relationship between the financial stability variable and fraudulent financial reporting, was confirmed, which indicates that financial stability, measured by the ratio of changes in total assets, has a positive and significant effect on fraudulent financial reporting. The second hypothesis of the study, that there is a positive and significant relationship between predetermined goals and fraudulent financial reporting, was confirmed, which indicates that there is a positive and significant relationship between the rate of return on assets and fraudulent financial reporting. The results obtained from testing the third hypothesis could not confirm the relationship between the financial leverage variable and fraudulent financial reporting. The results of testing the fourth hypothesis showed that the financial need of managers (management shares) has a positive and significant relationship with fraudulent financial reporting. The findings from the fifth hypothesis test showed that the industry nature variable has a positive and significant relationship with fraudulent financial reporting. The results of the sixth hypothesis test showed that there is a negative and significant relationship between the efficient supervision variable and fraudulent financial reporting. The results of the seventh hypothesis test, which stated that there is a positive and significant relationship between auditor change and fraudulent financial reporting, were confirmed with a confidence level of 90%. The test of the eighth hypothesis regarding the existence of a relationship between the acceptable opinion variable and fraudulent financial reporting indicates the existence of a negative and significant relationship between these two variables, which is in line with the agency theory. The result of the test of the ninth hypothesis confirmed the claim regarding the existence of a positive and significant relationship between the accruals ratio and fraudulent financial reporting, meaning that this ratio can create an opportunity for management to manipulate financial statements, especially in terms of income. The test of the tenth hypothesis regarding the existence of a positive and significant relationship between the CEO change variable and fraudulent financial reporting resulted in the rejection of the hypothesis. The examination of the relationship between the financial statement restatement ratio and fraudulent financial reporting indicates the existence of a positive and significant relationship between these two variables, which confirms the eleventh hypothesis. Regarding the existence of a relationship between the earnings management variable and fraudulent financial reporting, the test results showed that there is a positive and significant relationship between them, which leads to the confirmation of the twelfth hypothesis. The test of the thirteenth and fourteenth hypotheses failed to confirm these two hypotheses and showed that the variables of CEO duality and stock price changes have no significant relationship with fraudulent financial reporting, which is contrary to the agency theory that states that the element of arrogance has no significant relationship with fraudulent financial reporting. The fifteenth hypothesis, based on the existence of a positive and significant relationship between the market performance variable and fraudulent financial reporting, was confirmed. Finally, the sixteenth hypothesis, based on the existence of a positive and significant relationship between the related party transaction variable and fraudulent financial reporting, was not confirmed. Considering the results and limitations of the study, it is suggested that researchers use other fraud measurement models to identify and distinguish fraudulent from non-fraudulent companies or use a larger number of variables to identify each of the hexagonal elements of fraud with the help of new models and techniques such as machine learning, neural networks, and mathematical algorithms.

https://far.ui.ac.ir/article_30224_6a8bbd9ca59df670bb3093300ec63e2f.pdf

University of Isfahan Financial Accounting Research 2322-3405 17 2 2025 08 23 The Effect of Sustainability Reporting on Investment Sensitivity to Internal Cash Flow The Effect of Sustainability Reporting on Investment Sensitivity to Internal Cash Flow 109 124 30211 10.22108/far.2026.145508.2134 FA Fatemeh Kamranian Marnani Assistant Professor of Accounting, Ragheb Isfahani Higher Education Institute, Isfahan, Iran. Amir Hossein Eshaghi MSc of Accounting, Ragheb Isfahani Higher Education Institute, Isfahan, Iran. Journal Article 2025 06 23 One of the topics well addressed in the theoretical foundations of financial economics is the sensitivity of investment costs to cash flow. A company’s reliance on internal resources is determined by its investment sensitivity to its cash flow. This research investigates the impact of sustainability reporting on the sensitivity of investment to internal cash flow. The hypotheses of this study were tested using a sample of 120 companies listed on the Tehran Stock Exchange from 2011 to 2025, employing multivariate regression models and panel data analysis. This study is applied in terms of purpose and falls within the scope of descriptive-correlational research in terms of hypothesis inference. The findings from estimating the research model indicate that sustainability reporting positively affects the sensitivity of investment to internal cash flow. Due to its disclosure requirements in environmental, social, and governance areas (ESG), it necessitates liquidity. This reduction in liquidity intensifies the sensitivity of investment to internal cash flow. Introduction In the early decades, neoclassical economists argued that the social goal of corporations was to maximize shareholder wealth. Environmental and social responsibility can become a source of capability that can lead to a competitive advantage. Recent studies, focusing on the concept of Environmental, Social, and Governance (ESG), which pays more attention to business activities and strategic development, have had a broad view of corporate environmental and social responsibilities. Good economic, social, environmental, and corporate governance performance helps companies achieve sustainable business. Sustainable business occurs when companies do not sacrifice any natural and environmental resources to meet future needs. Business sustainability can be improved by achieving environmental, social, and governance aspects. Environmental, social, and governance aspects refer to the achievement of companies to improve social and environmental responsibility based on business ethics and effective governance implementation. Existing studies based on stakeholder theory have shown that ESG increases corporate liquidity by reducing information asymmetry and reducing agency conflicts. This increase in liquidity reduces the sensitivity of investment to internal cash flows. The World Commission on Environment and Development defines sustainable development as: “Progress and development that meets the needs of the present generation without compromising the right and ability of future generations to meet their needs from the environment and natural resources. This definition expresses the following three key points: Emphasis is placed on the fairness of ownership rights between generations. Establishing a forward-looking perspective reveals the role of long-term goals in collective and joint efforts over a wide period. It shapes the desirability and aspirations of ownership rights between generations. It expresses basic concepts from the category of sustainability in the form of the relationship between economic, environmental, and social conditions. Also, the World Business Council for Sustainable Development states: “Sustainable development is a simultaneous activity for economic prosperity, environmental quality, and social justice.” According to this definition, it can be inferred that the operational and strategic activities of a for-profit unit should consider environmental, economic, and social effects and also take action to meet the needs of stakeholders, especially shareholders, and their sustainability-based decision-making. Developing a strategy around sustainability requires the design and deployment of effective assessments of information systems related to social, environmental, and economic activities. In the following sections, the basics and background of the research, hypotheses, method, and findings will be presented. Finally, the discussion and conclusion will be discussed. Methodology To attain the mentioned purpose, a sample consisting of 120 companies was selected by a systematic elimination method from the companies listed on the Tehran stock exchange from 2011 to 2025. To estimate research hypotheses, weighted least squares and panel methods were used. The research hypothesis is as follows: Sustainability reporting has a positive and significant effect on investment sensitivity to internal cash flow. Findings The results of the estimation of the research model indicate that sustainability reporting hurts the sensitivity of investment to internal cash flow. Conclusion Sustainability reporting needs liquidity due to environmental, social, and governance disclosures. This decrease in liquidity increases the sensitivity of investment to domestic cash flow. Investment is a crucial tool for economic and social development. Increased investment reduces floating liquidity and inflation and increases the wealth of investors. Companies need to pay special attention to financing their investments. Investment cash flow sensitivity indicates the extent to which a company relies on internal financial resources. Companies with more imperfections in the capital market are more sensitive to internal cash flow. A company’s sustainability report is considered an effort toward transparency and accountability, which can measure the company’s concern for sustainability. One of the topics well addressed in the theoretical foundations of financial economics is the sensitivity of investment costs to cash flow. A company’s reliance on internal resources is determined by its investment sensitivity to its cash flow. This research investigates the impact of sustainability reporting on the sensitivity of investment to internal cash flow. The hypotheses of this study were tested using a sample of 120 companies listed on the Tehran Stock Exchange from 2011 to 2025, employing multivariate regression models and panel data analysis. This study is applied in terms of purpose and falls within the scope of descriptive-correlational research in terms of hypothesis inference. The findings from estimating the research model indicate that sustainability reporting positively affects the sensitivity of investment to internal cash flow. Due to its disclosure requirements in environmental, social, and governance areas (ESG), it necessitates liquidity. This reduction in liquidity intensifies the sensitivity of investment to internal cash flow. Introduction In the early decades, neoclassical economists argued that the social goal of corporations was to maximize shareholder wealth. Environmental and social responsibility can become a source of capability that can lead to a competitive advantage. Recent studies, focusing on the concept of Environmental, Social, and Governance (ESG), which pays more attention to business activities and strategic development, have had a broad view of corporate environmental and social responsibilities. Good economic, social, environmental, and corporate governance performance helps companies achieve sustainable business. Sustainable business occurs when companies do not sacrifice any natural and environmental resources to meet future needs. Business sustainability can be improved by achieving environmental, social, and governance aspects. Environmental, social, and governance aspects refer to the achievement of companies to improve social and environmental responsibility based on business ethics and effective governance implementation. Existing studies based on stakeholder theory have shown that ESG increases corporate liquidity by reducing information asymmetry and reducing agency conflicts. This increase in liquidity reduces the sensitivity of investment to internal cash flows. The World Commission on Environment and Development defines sustainable development as: “Progress and development that meets the needs of the present generation without compromising the right and ability of future generations to meet their needs from the environment and natural resources. This definition expresses the following three key points: Emphasis is placed on the fairness of ownership rights between generations. Establishing a forward-looking perspective reveals the role of long-term goals in collective and joint efforts over a wide period. It shapes the desirability and aspirations of ownership rights between generations. It expresses basic concepts from the category of sustainability in the form of the relationship between economic, environmental, and social conditions. Also, the World Business Council for Sustainable Development states: “Sustainable development is a simultaneous activity for economic prosperity, environmental quality, and social justice.” According to this definition, it can be inferred that the operational and strategic activities of a for-profit unit should consider environmental, economic, and social effects and also take action to meet the needs of stakeholders, especially shareholders, and their sustainability-based decision-making. Developing a strategy around sustainability requires the design and deployment of effective assessments of information systems related to social, environmental, and economic activities. In the following sections, the basics and background of the research, hypotheses, method, and findings will be presented. Finally, the discussion and conclusion will be discussed. Methodology To attain the mentioned purpose, a sample consisting of 120 companies was selected by a systematic elimination method from the companies listed on the Tehran stock exchange from 2011 to 2025. To estimate research hypotheses, weighted least squares and panel methods were used. The research hypothesis is as follows: Sustainability reporting has a positive and significant effect on investment sensitivity to internal cash flow. Findings The results of the estimation of the research model indicate that sustainability reporting hurts the sensitivity of investment to internal cash flow. Conclusion Sustainability reporting needs liquidity due to environmental, social, and governance disclosures. This decrease in liquidity increases the sensitivity of investment to domestic cash flow. Investment is a crucial tool for economic and social development. Increased investment reduces floating liquidity and inflation and increases the wealth of investors. Companies need to pay special attention to financing their investments. Investment cash flow sensitivity indicates the extent to which a company relies on internal financial resources. Companies with more imperfections in the capital market are more sensitive to internal cash flow. A company’s sustainability report is considered an effort toward transparency and accountability, which can measure the company’s concern for sustainability.

https://far.ui.ac.ir/article_30211_2540e86d3f739333713b227ed1d828e5.pdf

University of Isfahan Financial Accounting Research 2322-3405 17 2 2025 08 23 Ownership Concentration and Auditors' Professional Responsibility Regarding Earnings Management: Does a Modified Audit Opinion Lead to Auditor Change? Ownership Concentration and Auditors' Professional Responsibility Regarding Earnings Management: Does a Modified Audit Opinion Lead to Auditor Change? 125 168 30212 10.22108/far.2026.146701.2165 FA Yasser Shirzadi Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran Kaveh Parandin Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran 0000-0002-6798-5102 Abdollah Taki Assistant Professor, Department of Accounting, Payame Noor University, Tehran, Iran Fateme Alimirzaee MSc of Accounting, Brojen Branch, Islamic Azad University, Tehran. Iran Journal Article 2025 09 19 Ownership concentration is one of the key factors influencing management behavior and the professional responsibility of auditors. This study investigates the impact of corporate ownership concentration on the relationship between earnings management behavior, auditor opinion, and auditor change. For this purpose, a sample of 167 companies listed on the Tehran Stock Exchange during the period 2016-20223 was used. Logistic regression with error clustering was used to test the hypotheses. The findings show that in companies with high ownership concentration, there is a positive and significant relationship between the level of earnings management and the likelihood of receiving a modified opinion. Also, in these companies, a negative and significant relationship was observed between a modified opinion and auditor change. In contrast in companies with low ownership concentration, earnings management leads to a decrease in the likelihood of receiving a modified opinion, but a modified opinion increases the likelihood of changing the auditor. The findings indicate that ownership concentration plays a decisive role in auditors' professional responsibility towards earnings management, the type of their opinion, and decisions to change the auditor. The results of this research can be useful for auditors, regulatory bodies, and investors in improving the quality of financial reporting and corporate governance. Introduction The audit report is one of the most important tools for assessing the transparency and reliability of a company’s financial statements. Its primary purpose is to provide the auditor’s independent opinion on whether the financial reports conform to generally accepted accounting principles. By examining internal controls and financial records, auditors identify weaknesses and risks, thereby contributing to the improvement of a company’s financial performance. A modified audit opinion is issued when the auditor cannot provide an unqualified opinion. The reasons may include limitations in the scope of the audit, material misstatements, or fundamental uncertainties in the financial statements. Such an opinion is intended to inform users about the real situation and existing risks in the disclosed financial information. Earnings management, which involves deliberate manipulation of financial reporting to achieve specific goals, is among the key factors that can lead to a modified opinion. When auditors detect evidence of such practices, they are obligated to adjust their report to preserve their independence and professional credibility. This decision reflects their professional skepticism and ethical duty to prevent the presentation of a misleading picture of the company’s financial condition. The major financial scandals of the early 2000s—such as Enron and WorldCom—highlighted the importance of effective oversight, ethical auditing, and robust internal controls, leading to widespread reforms in corporate governance. The present study examines the relationship between ownership structure, earnings management, type of audit opinion, and auditor change, with particular emphasis on the role of ownership concentration in shaping these interactions. Methodology This empirical study examines the relationships among ownership concentration, earnings management, audit opinion, and auditor change using data from companies listed on the Tehran Stock Exchange during the years 2016 to 2023. The research is grounded in agency theory, which highlights the conflict of interest between shareholders and managers. The study formulates four hypotheses as follows: Hypothesis 1: In firms with high ownership concentration, the greater the level of earnings management, the higher the likelihood that the auditor issues a modified audit opinion. Hypothesis 2: In firms with high ownership concentration, a modified audit opinion is less likely to result in a change of the auditing firm. Hypothesis 3: In firms with low ownership concentration, the probability that a high level of earnings management leads to a modified audit opinion is lower. Hypothesis 4: In firms with low ownership concentration, the issuance of a modified audit opinion increases the likelihood of changing the auditing firm. To test these hypotheses, a Logit regression analysis was employed. Earnings management was measured using the Jones model, while audit opinion and auditor change were quantified as binary variables (0 or 1). Companies were categorized into high and low ownership concentration groups based on an ownership concentration index. Findings The results of this study reveal complex and significant relationships among ownership concentration, earnings management, the type of audit opinion, and auditor change. The empirical analysis indicates that a company’s ownership structure plays a decisive role in shaping the interaction between auditors and management, leading to different consequences for the quality of financial reporting. In firms with high ownership concentration, a positive relationship was found between higher levels of earnings management and the likelihood of receiving a modified audit opinion. This finding supports the first hypothesis and suggests that auditors—under the pressure of major shareholders—report detected distortions to maintain their independence. On the other hand, in such firms, a negative relationship was observed between the issuance of a modified opinion and auditor change. This means that controlling shareholders, rather than replacing the auditor, tend to accept these modified reports as a tolerable cost for achieving their specific goals (such as maintaining the appearance of profitability or concealing financial problems). This behavior reflects their real influence and power in retaining a preferred auditor. In contrast, firms with dispersed ownership display a different pattern. In these environments, management—having greater autonomy—may engage in “opinion shopping,” meaning they select or influence auditors who are less inclined to issue modified opinions. The findings show that in such companies, the probability of a modified opinion is lower (supporting Hypothesis 3). However, when such an opinion is issued, the likelihood of auditor change significantly increases (supporting Hypothesis 4), since a broader group of shareholders tends to be more sensitive to audit warning signals and acts swiftly to restore trust by replacing the auditor. Conclusion and Implications This research demonstrates that ownership concentration plays a critical role in shaping the relationships among earnings management, auditor behavior, and auditor change decisions, exerting a profound impact on both the quality of financial reporting and corporate governance. The results indicate that the degree of ownership concentration can influence an auditor's judgment and reaction to earnings management, as external pressures and incentives from controlling shareholders may challenge the professional independence of auditors. In firms with dispersed ownership, managers have greater latitude to influence auditors and may utilize the phenomenon of opinion shopping to prevent the issuance of modified reports. Conversely, in firms with concentrated ownership, major shareholders tend to prioritize a favorable financial image and exhibit greater flexibility regarding the auditor's opinion; consequently, the likelihood of auditor change in these firms is lower. These findings are particularly important for regulatory bodies and policymakers, as they illustrate that different ownership structures directly affect audit quality and financial reporting. In economies like Iran, characterized by diverse ownership structures, it is essential to develop regulatory mechanisms that mitigate the pressures arising from ownership concentration. Furthermore, auditors must maintain their independence and professional skepticism to resist these pressures. Ultimately, the study underscores the necessity for investors to pay close attention to a company’s ownership structure when assessing the reliability of its financial information. Ownership concentration is one of the key factors influencing management behavior and the professional responsibility of auditors. This study investigates the impact of corporate ownership concentration on the relationship between earnings management behavior, auditor opinion, and auditor change. For this purpose, a sample of 167 companies listed on the Tehran Stock Exchange during the period 2016-20223 was used. Logistic regression with error clustering was used to test the hypotheses. The findings show that in companies with high ownership concentration, there is a positive and significant relationship between the level of earnings management and the likelihood of receiving a modified opinion. Also, in these companies, a negative and significant relationship was observed between a modified opinion and auditor change. In contrast in companies with low ownership concentration, earnings management leads to a decrease in the likelihood of receiving a modified opinion, but a modified opinion increases the likelihood of changing the auditor. The findings indicate that ownership concentration plays a decisive role in auditors' professional responsibility towards earnings management, the type of their opinion, and decisions to change the auditor. The results of this research can be useful for auditors, regulatory bodies, and investors in improving the quality of financial reporting and corporate governance. Introduction The audit report is one of the most important tools for assessing the transparency and reliability of a company’s financial statements. Its primary purpose is to provide the auditor’s independent opinion on whether the financial reports conform to generally accepted accounting principles. By examining internal controls and financial records, auditors identify weaknesses and risks, thereby contributing to the improvement of a company’s financial performance. A modified audit opinion is issued when the auditor cannot provide an unqualified opinion. The reasons may include limitations in the scope of the audit, material misstatements, or fundamental uncertainties in the financial statements. Such an opinion is intended to inform users about the real situation and existing risks in the disclosed financial information. Earnings management, which involves deliberate manipulation of financial reporting to achieve specific goals, is among the key factors that can lead to a modified opinion. When auditors detect evidence of such practices, they are obligated to adjust their report to preserve their independence and professional credibility. This decision reflects their professional skepticism and ethical duty to prevent the presentation of a misleading picture of the company’s financial condition. The major financial scandals of the early 2000s—such as Enron and WorldCom—highlighted the importance of effective oversight, ethical auditing, and robust internal controls, leading to widespread reforms in corporate governance. The present study examines the relationship between ownership structure, earnings management, type of audit opinion, and auditor change, with particular emphasis on the role of ownership concentration in shaping these interactions. Methodology This empirical study examines the relationships among ownership concentration, earnings management, audit opinion, and auditor change using data from companies listed on the Tehran Stock Exchange during the years 2016 to 2023. The research is grounded in agency theory, which highlights the conflict of interest between shareholders and managers. The study formulates four hypotheses as follows: Hypothesis 1: In firms with high ownership concentration, the greater the level of earnings management, the higher the likelihood that the auditor issues a modified audit opinion. Hypothesis 2: In firms with high ownership concentration, a modified audit opinion is less likely to result in a change of the auditing firm. Hypothesis 3: In firms with low ownership concentration, the probability that a high level of earnings management leads to a modified audit opinion is lower. Hypothesis 4: In firms with low ownership concentration, the issuance of a modified audit opinion increases the likelihood of changing the auditing firm. To test these hypotheses, a Logit regression analysis was employed. Earnings management was measured using the Jones model, while audit opinion and auditor change were quantified as binary variables (0 or 1). Companies were categorized into high and low ownership concentration groups based on an ownership concentration index. Findings The results of this study reveal complex and significant relationships among ownership concentration, earnings management, the type of audit opinion, and auditor change. The empirical analysis indicates that a company’s ownership structure plays a decisive role in shaping the interaction between auditors and management, leading to different consequences for the quality of financial reporting. In firms with high ownership concentration, a positive relationship was found between higher levels of earnings management and the likelihood of receiving a modified audit opinion. This finding supports the first hypothesis and suggests that auditors—under the pressure of major shareholders—report detected distortions to maintain their independence. On the other hand, in such firms, a negative relationship was observed between the issuance of a modified opinion and auditor change. This means that controlling shareholders, rather than replacing the auditor, tend to accept these modified reports as a tolerable cost for achieving their specific goals (such as maintaining the appearance of profitability or concealing financial problems). This behavior reflects their real influence and power in retaining a preferred auditor. In contrast, firms with dispersed ownership display a different pattern. In these environments, management—having greater autonomy—may engage in “opinion shopping,” meaning they select or influence auditors who are less inclined to issue modified opinions. The findings show that in such companies, the probability of a modified opinion is lower (supporting Hypothesis 3). However, when such an opinion is issued, the likelihood of auditor change significantly increases (supporting Hypothesis 4), since a broader group of shareholders tends to be more sensitive to audit warning signals and acts swiftly to restore trust by replacing the auditor. Conclusion and Implications This research demonstrates that ownership concentration plays a critical role in shaping the relationships among earnings management, auditor behavior, and auditor change decisions, exerting a profound impact on both the quality of financial reporting and corporate governance. The results indicate that the degree of ownership concentration can influence an auditor's judgment and reaction to earnings management, as external pressures and incentives from controlling shareholders may challenge the professional independence of auditors. In firms with dispersed ownership, managers have greater latitude to influence auditors and may utilize the phenomenon of opinion shopping to prevent the issuance of modified reports. Conversely, in firms with concentrated ownership, major shareholders tend to prioritize a favorable financial image and exhibit greater flexibility regarding the auditor's opinion; consequently, the likelihood of auditor change in these firms is lower. These findings are particularly important for regulatory bodies and policymakers, as they illustrate that different ownership structures directly affect audit quality and financial reporting. In economies like Iran, characterized by diverse ownership structures, it is essential to develop regulatory mechanisms that mitigate the pressures arising from ownership concentration. Furthermore, auditors must maintain their independence and professional skepticism to resist these pressures. Ultimately, the study underscores the necessity for investors to pay close attention to a company’s ownership structure when assessing the reliability of its financial information.

https://far.ui.ac.ir/article_30212_52afac11fb3ab36ee3a2d0cf17a1bd43.pdf