The Relationship between Corporate Governance Mechanisms and Profit Smoothing

Original scientific paper The present study aims to investigate some mechanisms of corporate governance on profit smoothing. In fact, it studies the relationship between institutional investors, outside board members, internal audit and profit smoothing. A hypothesis was formulated for each of these options and their effect on profit smoothing was tested. A regression model was used to test the hypotheses. Participants include companies listed on Tehran Stock Exchange during 2000 ÷ 2008. Studied sample includes 138 companies. Relations were tested using an econometric model and ordinary least squares (OLS). The study used stepwise regression and Spearman correlation coefficient to prioritize. The results indicate a significantly positive relationship between nonexecutive board percentage and significantly inverse relationship between internal audit and common shareholders’ equity and profit smoothing. Spearman correlation test revealed that outside directors have the highest effect on profit smoothing.