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The Effect of Firm Size and Growth Opportunity on Accounting Discretion and its Relationship with Future Stock Return (Management Opportunism Test)

Jomadoordi Gorganli, Hamidreza Vakilifard


Accounting flexibility has raised concern about management opportunism among owners. Accounting discretion, as an information system controlled by directors, intensifies opportunism and agency problem. Regarding the firm situation, however, directors are likely to employ accounting discretion so that its consequences are compatible with shareholders’ interests, or at least do not oppose them. Firm size and growth opportunity are of great importance for its management, depending on the way it uses accounting discretion. The present study aims to offer a model indicating the relationship between firm size and growth opportunity and accounting discretion, and its effect on stock return as a distinctive characteristic of firm performance and consequently, test the management opportunism. This research employs an applied and correlational method. The results respectively point to a positively and negatively significant relationship between firm size and firm’s growth opportunity, and accounting discretion while the relationship between accounting discretion resulting from recent variables and stock return does not point to the opportunism of the directors. In general, the results indicated that there is no significant difference between predicted accounting discretion and projected future stock returns which indicates that there is a mismanagement in creating opportunities among the firms under study.


firm size, firm’s growth opportunity, accounting discretion, stock return, management opportunism

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