Study of the model for measuring the quality of internal control structure with profit quality and financial performance in companies listed on the Tehran Stock Exchange

Document Type : Original Article

Authors

1 Associate Professor Professor, Department of Accounting, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.

2 Ph.D of Accounting, Department of Accounting, Allameh Tabataba'i University, Tehran, Iran.

3 Ph.D of Accounting, Department of Accounting, Faculty of Social and Economic Sciences, AlZahra University, Tehran, Iran.

Abstract

Objective: Accounting information plays a crucial role in the optimal allocation of economic resources. Consequently, the quality of such information has received increasing attention in recent years, particularly due to financial reporting scandals and corruption cases in corporate financial systems. The implementation of effective internal control systems within companies, along with high-quality internal control structures, enhances the accuracy, effectiveness, and efficiency of accounting information systems. Pursuant to the Internal Control Guidelines issued by the Securities and Exchange Organization (of Iran), the board of directors of listed companies is required to establish and operate appropriate and effective internal controls aimed at achieving profitability and improving corporate financial performance. The present study aims to examine the impact of the quality of internal control structure on earnings quality and the financial performance of companies listed on the Tehran Stock Exchange.
Methods: This study is applied in nature and descriptive in terms of methodology. Accordingly, information from 119 companies listed on the Tehran Stock Exchange from 2019 to 2023 was used as a statistical sample. The research data were analyzed using regression models and panel data techniques. In this regard, the quality of the internal control structure measurement has been used as an independent research variable, which includes three environmental, structural, and executive dimensions, and the results dimension. The environmental dimension includes components such as the cultural, social, and economic system where the company operates, the legal, political, and economic structure governing the company, and the general structure of the company. The structural and executive dimension addresses the components of the board structure, specialized board committees, the company's senior management structure, and the internal supervisory structure, and then the results include the components of the internal controls assessment report, the independent auditor's report, the company's compliance with laws and regulations, the company's tax and insurance structure, and the transparency and quality of reporting - observing justice and fairness in the company, and the variables of earnings quality (Dechow and Dechow, McNichols, Cozink and Penman model) and financial performance (operating cash flow, net profit, operating profit and sales revenue) were used as dependent variables of the research.
Results: The test of the research hypotheses indicated that improving internal controls improves all four models of earnings quality (Dechow Dechow), earnings quality (McNichols), earnings quality (Cozink), and earnings quality (Penman). Also, improving internal controls improves the company's financial performance (operating cash flow), the company's financial performance (net profit), the company's financial performance (operating profit), and the company's financial performance (sales revenue).
Conclusion: Based on the positive relationship between the internal control structure quality measurement model and the variables of profit quality and financial performance, the more companies benefit from a better structure in relation to environmental, structural, and executive dimensions and the results dimension, and in some way have a more desirable internal control structure quality, the better profit quality and higher financial performance they have.
Innovation: The innovation of the present study can be articulated along several key dimensions within the literature on internal controls and financial reporting: First, while a substantial body of prior research has relied on relatively limited and externally oriented proxies—such as the type of auditor’s opinion or the mere existence of internal control reports—to assess the quality of internal control structures, this study adopts a more systematic and context-sensitive approach. Specifically, it employs a localized, multi-dimensional model tailored to the institutional, economic, and regulatory environment of Iran. By decomposing internal control quality into environmental, structural–executive, and outcome dimensions, and operationalizing these through a comprehensive set of indicators, the study provides a more nuanced and realistic assessment of internal control effectiveness. Second, the study departs from single-measure approaches to earnings quality by employing a multi-metric framework.

Keywords

References

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History

  • Receive Date: 31 January 2026
  • Revise Date: 05 May 2026
  • Accept Date: 06 May 2026
  • First Publish Date: 22 May 2026
  • Publish Date: 22 May 2026

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