Objectives: This study aims to examine the relationship between financial crises and both real and accrual earnings management, emphasizing the moderating role of internal control effectiveness among firms listed on the Tehran Stock Exchange (TSE). Methodology/Design/Approach: The research is applied in nature and employs a causal (ex post facto) correlational design. The statistical population includes all firms listed on the TSE, from which 131 companies were selected using the systematic elimination sampling method. The study covers a six-year period from 2018 to 2023. Financial crises were measured using Altman’s Z-score model, accrual earnings management was assessed through the Modified Jones Model, and real earnings management was measured using three proxies: abnormal discretionary expenses, abnormal production costs, and abnormal operating cash flow. Findings: The results show a positive and significant relationship between financial crises and accrual earnings management, indicating that firms tend to manipulate accruals during periods of financial distress. Conversely, a negative relationship was found between financial crises and real earnings management. Furthermore, the findings confirm the moderating role of internal control effectiveness, demonstrating that strong internal controls mitigate the extent of both accrual-based and real earnings management during financial crises. Innovation: This study contributes to the literature by providing empirical evidence on how financial crises influence managerial behavior in earnings manipulation and how robust internal control systems can serve as effective governance mechanisms in reducing opportunistic financial reporting. The findings have practical implications for regulators, auditors, and corporate managers seeking to strengthen financial transparency during periods of economic instability.
Naseri et al. (2025) studied this question.