The Impact Of Accounting Manipulation In Financial Statements On Investors' Decisions: An Applied Study On A Sample Of Companies Listed On The Iraq Stock Exchange

Abstract

This study will investigate the effects of accounting manipulation in financial reports on the decisions of Iraq Stock Exchange (ISX) investors in the status. The study was based on three major models used to calculate accounting manipulation: adjusted Jones model to determine discretionary accrual (DA), Beneish M-Score to identify manipulative firms, and Roychowdhury model to evaluate manipulation in operating activities. Cumulative abnormal returns (CAR), measured by the event study methodology, were also applied in the measurement of investor decision, along with the market liquidity index (ILLIQ) in relation to the Amihud equation, and control variables, which include the size of the company, leverage, and profitability, were also incorporated. The findings indicated that accounting manipulation has a negative but significant influence on the decision of investors, as it was found to be associated with an increased amount of market liquidity and weak abnormal returns. In addition, greater profitability was associated with a more stable investor confidence of the company whereas the opposite was true of financial leverage. The findings point to the fact that enhancing governance systems and external audit would reduce the effects of accounting manipulation and enhance the credibility level of financial statements. The research suggests that investors should be guided by the advanced analytical tools in order to identify manipulation prior to making investment choices and the role of improving the transparency of financial reporting through the activation of the internal audit and review committees and increasing the checks of regulatory authorities.