Document Type : Original Article

Authors

• Manijeh Ramsheh ¹
• Zohreh Arefmanesh ²
• Roghie Rostami ³
• Zohreh Khastar ³

¹ Assistant Professor, Department of Accounting, Faculty of Economics and Administrative Sciences, University of Qom, Qom, Iran

² Assistant Professor, Department of Accounting, Faculty of Economics, Management and Accounting, Yazd University, Yazd, Iran

³ Master of Sciene in Accounting, Faculty of Economics and Administrative Sciences, University of Qom, Qom, Iran

Abstract

In the behavioral finance paradigm, investor sentiment can affect managers' behavior in financial reporting. Therefore, this study examines the relationship between investor sentiment and the likelihood of fraudulent financial reporting. Additionally, as risk disclosure may influence the relationship between investor sentiment and the likelihood of fraud, this paper investigates its moderating role. For this purpose, the data of 41 companies operating in the petroleum and petrochemical industries in Tehran Stock Exchange during the years 2013 to 2021 were used. The research models have been examined by logistic regression method. The results show that the likelihood of fraud is lower when investor sentiment is high. Furthermore, the study of the market's reaction to fraud shows that the market reaction to fraud announcements is less negative during high investor sentiment periods. In addition, the results demonstrated that risk disclosure moderates the relationship between investor sentiment and the likelihood of fraudulent financial reporting. It may be because, risk disclosure reduces the impact of investor sentiment on auditors' optimism by reducing information asymmetry between managers and investors. This leads to an increase in audit report clauses that confirm likelihood of fraudulent financial reporting.

Keywords

• Investor Sentiment
• Risk Disclosure
• Fraud
• Market Reaction

Main Subjects

• Accounting