Industrial Engineering

& Management Systems

Vol 19, No 4, December 2020, pp.908-915 https://doi.org/10.7232/iems.2020.19.4.908
ISSN 1598-7248│EISSN 2234-6473│ © 2020 KIIE

The Effect of Business Diversity on the Relation

between Profit Sustainability, Real Earnings
Management and Commercial Credit in
Companies of Securities and Exchange
Organization of Iraq
Salah Chyad Kadhim
Business Administration Department, Kut University College, AL Kut, Wasit, Iraq
Hussein Falah Hasan*, Hudaa Nadhim Khalbas
Department of Accounting, Dijlah University College, Massafi st Doura, 10021, Baghdad, Iraq

(Received: October 14, 2020 / Revised: November 30, 2020 / Accepted: December 4, 2020)

ABSTRACT
The main purpose of this research is to analyze the effect of business diversity on the relation between profit sustaina-
bility, real earnings management and commercial credit in companies of Securities and Exchange Organization of
Iraq. In this research, dependent variable is business credit which is calculated through dividing trade payable ac-
counts of the company on the total asset (Petersen and Rajan, 1997; Giannetti et al., 2011) the independent variables
are profit sustainability and real earnings management; in order to calculate profit sustainability the Kormendi and
Lipemodel has been utilized while for calculating real earnings management the model that already has been used.
The research data has been gathered by using a sample made up of 35 companies during 2011-2016. The research
hypotheses were analyzed by hybrid data in SATA14 application. The results indicate that the modular effect of busi-
ness diversity on the relation of profit sustainability and business credit is positive and meaningful, and the modular
effect of business credit on the relation between real profit management and business credit is not meaningful.

Keywords: Business Credit, Profit Sustainability, Real Earnings Management, Business Diversity

* Corresponding Author, E-mail: hussien.falah@duc.edu.iq

1. INTRODUCTION (Akhbari and Taqavi, 2007). Development of new prod-

Taking into account the change in consumers’ taste
and also the transformations that occur in competing and
technological situations, a company cannot and should
not rely exclusively on its current products since custom-
ers are willing to have new and more advanced goods
ucts is one of the most important factors creating the basis
of success. This fact holds true specially does more for
companies based on modern technologies because having
a correct first idea is so much important for these compa-
nies and assures the ground and predisposition of its de-
velopment in future. The issue of success in presenting
The Effect of Business Diversity on the Relation between Profit Sustainability, Real Earnings Management and Commercial Credit in Companies of Securities and Exchange Organization of Iraq
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE
new products to target markets is of high importance for
managers and owners of these businesses. Considering
competitive situations surrounding economic institutions,
development of new products is the only way to survive
their profitability. Big companies play an important role
in countries’ economies and are usually of a high variety
in business. Attentions are focused on stating strategy for
business entities rather than stating strategy for entities
holding only one business. From Matususaka (2001)
point of view variety is the process of seeking for busi-
nesses appropriate to entities’ abilities (Matususaka, 2001,
409). When the competition gets intense and the risk rate
goes up, this strategy is used in order to decrease the
competition risk and pressure and the probability of being
let down; it means that instead of investing on one prod-
uct or becoming single-product, they start presenting
products in several different products. Diversification is
done in two concentric and nonconcentric ways that are
the basis of presenting new related products and services
to customers (concentric) or new products and unrelated
services to customers (nonconcentric) (Ali-Ahmadi, 2010,
67). Diversification is a part of four main growth strate-
gies presented by Ansoff product-market matrix. Ansoff
has pointed out that diversification strategy is excluded
from three other strategies. The first three strategies seek
for technical and financial sources and goods in order to
use the main product line, while diversification of a com-
pany usually requires acquisition of new skills, techniques,
sources and facilities. Diversification is the riskiest strate-
gy amongst the four strategies presented in Ansoff matrix
and requires accuracy of investment in this strategy. En-
tering an unknown market with non-familiar offered
products means the lack of experience in new and essen-
tial skills and techniques. Therefore, the company has
stepped into a great distrust. The definition of diversifica-
tion depends on subjective interpretation of new market
or new product that should reflect the customers’ compre-
hension instead of those of the managers; in fact, products
lead to creation or instigation of new markets, and new
markets improve the innovation of the product (Daadbeh
and Baqerabadi, 2012, 91).
2. LITERATURE REVIEW
Researches of Apostu (2010) have been generally
conducted on European countries and has studied the role
of diversification strategies in various financial items con-
sidering the previous economic studies. Controlling the
size of the company, profitability, growth, tangible assets
and operational risk, he concluded that geographical and
commercial diversification doesn’t have any effect on the
structure of the capital.
Erdorf et al. (2012) proceeded to analyze the influ-
ence of corporate diversification on the company’s value.
909
While at the beginning of this century, the dominant atti-
tude amongst researches and workingmen was that corpo-
rate diversification leads to depreciation of company’s
value, several researches doubted about the company’s
value. In their research, they came to this conclusion that
corporate diversification doesn’t lead to depreciation of
company’s value by itself, and this effect is different
among particular industrial complexes, financial situa-
tions and administrative structures.
Dust and Dadbeh (2014) analyzes the company’s di-
versification, information asymmetry and company’s per-
formance. Their studies indicate that factors such as in-
crease of unsteadiness and disturbance in industry, man-
agers’ focus on increasing stock value and growth and
emergence of new ideas about the company’s manage-
ment have been reasons for make this company concen-
trated again. They assessed a strategic business environ-
ment of companies of Securities and Exchange Organiza-
tion of Tehran in a sample of 47 great companies in 2008-
2012. The results have shown that the diversification of
great companies has affected the information asymmetry,
and also the companies’ diversifications have effects on
their performance.
Chen et al. (2017) attempted to analyze the quality
of accounting and commercial credit to see whether com-
panies with the lowest level of accounting quality can use
more of commercial credit as a financing resource. Due to
the information asymmetry of those companies, providers
are more likely to provide the commercial credit for cus-
tomers possessing a lower quality of accounting. The
results conform to this anticipation which means there is a
negative, meaningful relation between companies’ quality
of accounting.
Li et al. (2018) analyzed the financial report and
commercial credit in 30 countries in 2000-2014. The
main purpose of the research is the effect of applying
IFRS on commercial credit. Data show that companies
located in countries which apply IFRS collect more
commercial credit from their providers. Furthermore, the
quality of financial reporting has an important role in faci-
litating the financing.
Masahiro (2019) conducted a research entitled " the
effect of corporate governance on the relation between the
quality of accounting and commercial credit: evidences
from Japan. The research was conducted since 201 t 2014.
The results indicate that commercial credit increases by
increasing the quality of accounting. Also, the presence of
benefit between providers and customers weakens the
relation between the quality of accounting and commer-
cial credit.
Huang et al. (2019) conducted a research entitled “the
commercial credit and companies’ sustainable growth in
China” through the data from financial statements of
208989 companies since 2003 until 2017. The results of
this research indicated that there is a positive, meaningful
Kadhim, Hasan, and Khalbas: Industrial Engineering & Management Systems
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE
relation between commercial credit and sustainable
growth of the companies, and also that the relation be-
tween commercial credit and sustainable growth of com-
panies while having less access to financing is greater.
Moqarrabi (2012) has studied the effect of corporate
diversification on company’s performance using the ratio
of Tobin’s Q. The results show that corporate diversifica-
tion doesn’t affect the company’s performance and that
there is no meaningful relation between geographical
diversification and company’s performance.
Almzade (2013) has assessed the effect of corporate
diversification on cash holding in companies accepted in
Securities and Exchange Organization of Tehran. The
results state that the influence of corporate and commer-
cial diversification on cash holding is negative and mea-
ningful, and geographical diversification has no relation
with cash holding.
Aflatuni and Nemati (2018) analyzed the role of fi-
nancial reporting’s quality and disclosure’s quality in in-
creasing the commercial credit. The sample of the re-
search included 146 companies accepted in Securities and
Exchange Organization of Tehran during 1383-1395. The
acquired results indicate that by increasing the quality of
financial reporting and disclosure, the commercial credit
rate increases.
3. METHODOLOGY
Aim wise, this research is practical, and is done by
correlation method. The library method was employed to
collect theoretical foundations. In order to do so, the data
related to literature review has been gathered through
using library resources, magazines, books and essays
available in universities’ libraries through retrospective
study.
3.1 Theoretical Foundations
In the last twentieth century, because of expert com-
panies having become susceptible to rapid and unex-
pected changes, the environment (diversity) became an
essential foundation for development and survival of the
companies; the increasing importance of diversity in ex-
planation of occurred changes in the shape and the profile
of organizations and industries has led to the expansion of
a wide range of researches in various social sciences. A
diversity is the extent to which institutes are busy in dif-
ferent business activities simultaneously (Tehrani and
Hadi, 2006).
Oxford dictionary 2009 defines the word diversity as
follows: (about entities) means the expansion or change in
the spectrum of products, domain of activities or such, in
order to decrease the dependence of the entity to a partic-
ular market or like that. The definition of diversification
910
depends on the subjective interpretation about the new
market or the new product that must reflect the customers’
understanding of that market rather than those of manag-
ers. Actually, products lead to creation or instigation of
new markets, and new markets improve the innovation of
the product (Daadbeh and Baqerabadi, 2012).
3.2 Commercial Diversification
In commercial diversification, the company pos-
sesses diversity in activities, and is active in two or sever-
al parts of the market, and each commercial part is a se-
parable part of the business entity that presents a related
product or service or a group of related products or of
services, and contains risk and interest different than other
parts of the business entity. Factors below must be consi-
dered in mind while determining about related products
and services:
a) The nature of products or services
b) The nature of productive processes
c) Customers’ type or class for products or services
d) Methods of product distribution or service provi-
sion
e) The nature of relevant principles; for instance,
banking and insurance regulations (Iran’s ac-
counting standards, no. 25)
On the other hand, commercial credit is a short term,
financing resource for small and mid-sized companies (Sei-
fert et al., 2013). In regard to law, each commercial credit
deal is a mutual obligatory agreement which allows the
client to receive the merchandise and services before pay-
ing for them to the provider, and to register the commercial
credit as a current liability in the balance sheet. From the
provider point of view, the given commercial credit is in-
vestment in receivable accounts and documents, and ap-
pears as a property in balance sheet (Izadinia and Taheri,
2015). According to Biais and Gollier (1997) for compa-
nies facing financial limitations, using commercial credit is
easier compared to other resources of financing. However,
since the clients must bear the implied cost of this sort of
financing, commercial credit is only a choice and if there is
no better and cheaper alternative, it can be beneficial (De-
loof and Van Overfelt, 2008). Although Petersen and Rajan
(1997) find commercial credit and bank loans as alternative
financial resources, Burkart and Ellingsen (2004) consider
these resources as complements (and not alternatives) of
each other. Various factors affect the rate of commercial
credit. Biais and Gollier (1997) believe that by decreasing
the information asymmetry between client and clerk, client
can receive more of commercial credit from clerk. Increas-
ing the quality of financial reporting Biddle and Hilary
(2006) and increasing the disclosure quality (Brown and
Hllingsen, 2007) are amongst the methods of decreasing
information asymmetry; therefore, one of the methods of
The Effect of Business Diversity on the Relation between Profit Sustainability, Real Earnings Management and Commercial Credit in Companies of Securities and Exchange Organization of Iraq
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE 911

increasing the commercial credit is decreasing the asymme- stability of profit.

try between client and customer. Clients, by increasing the
quality of financial reporting, can provide more informa- 3.3.3 The Model of Roychowdhury(2006) for Mea-
tion about the financial situation and performance to clerks suring Real Earnings Management
and decrease the current information asymmetry and
⎛ CFOit ⎞⎟ ⎛ 1 ⎞⎟ ⎛ S ⎞
through this, lead to increase in received credit from clerks. ⎜⎜ ⎟ ⎜ ⎟⎟ + β1 ⎜⎜ it ⎟⎟⎟
⎜⎝⎜ TA ⎠⎟⎟ = β0 + β1 ⎝⎜⎜⎜ TA ⎟ ⎝⎜⎜ TAit−1 ⎠⎟
(2)
Regarding the preceding explanations, it seems ne- it −1 it −1 ⎠

cessary to study the effect of business diversity on the ⎛ S ⎞

+β1 ⎜⎜⎜ it ⎟⎟⎟ + εit
relation between profit sustainability, real earnings man- ⎜⎝ TAit−1 ⎠⎟
agement and commercial credit. Therefore, following
hypotheses are formulated in order to study the men- That in this model:
tioned relations: CFO: net operating cash flow
The first hypothesis: business diversities of compa- S: company’s sale
nies affect the relation between profit sustainability and TA: total asset
commercial credit.
The second hypothesis: business diversities of com- 3.4 Test of Hypotheses
panies affect the relation between real earnings manage-
ment and commercial credit. The first hypothesis test:
APit = β0+β1PSit+β2DGOODSit+β3PS*DGOODSit
3.3 The Method and Tools of Data Acquisition +β4SIZEit+β5SALEGROWTHi,t+β6AGEi,t
+β7AGE2i,t+β8ROAi,t+β9ARi,t+β10TOBINSQi,t
In order to acquire demanded data, financial state- +β11CASHi,t+β12DEBTi,t
ments from assessed companies and the information giv- + β13MARKETSHAREi,t +εi,t
en by Tadbirepardaz Securities and Exchange Organiza-
tion were collected, and then by summing up and required AP: is the commercial credit that is calculated by di-
calculations have become ready to be analyzed in Excel. viding commercial accounts payable of the company on
the total asset.
3.3.1 Method of Data Analysis PS: profit sustainability
The final analysis will be done by Sata14 and other DGOODSit (commercial diversification): is a diva-
authentic statistics applications if necessary. lent variable and its quantity is one if the company has
commercial diversification, and if not, it will be consi-
3.3.2 Overview or Conceptual Model dered to be zero.
The dependent variable of the research is commer- SIZEit (size of the company): the logarithm of com-
cial credit that is calculated by dividing the accounts pay- pany’s total asset
able on the total assets (Petersen and Rajan, 1997; Gian- SALEGROWTHit (sale growth): the sale of the cur-
netti et al., 2011). rent year subtracted from the sale of the previous year,
The dependent variable of the research is profit sus- divided on the sale of the previous year.
tainability and real earnings management. In order to AGEit (age of the company): the natural logarithm of
measure the profit sustainability, the model will be uses, the number of the years company has been established.
but for real earnings management, will be used and is as AGE2it (the total of squares of company’s age (the
follows: natural logarithm of the number of the years company has
Kormendi and Lipe (1987) model for measuring the been established).
profit sustainability: ROAit (return of assets): the earnings before deduc-
tion of the taxes, devided on total assets of the company.
Earn it Earn it-1 ARit (the ratio of accounts receivable): the total of
= α + δ* + Vit (1)
Total Asset it-1 Total Asset it-1 accounts receivable divided on the total assets of the
company.
That in this model: TOBINSQit (the ratio of Tobin’s Q): the value of the
EARN i ,t : operating income of the company i in the
market of shareholders’ equity plus book value of compa-
year t ny’s liabilities, divided on the book value of company’s
Total asset: the whole assets total assets.
If the explanatory variable coefficient of the profit CASHit (the ratio of cash): the total of cash and its
sustainability’s model (δ1) approximates one or is greater equivalent, divided on the company’s total assets.
than one, indicates the high sustainability of profit; and if DEBTit (the ratio of debt): the total of debts divided
it approximates zero or is lesser than zero, expresses in- on company’s total assets.
Kadhim, Hasan, and Khalbas: Industrial Engineering & Management Systems
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE 912

MARKETSHAREit (market share): is company’s
sale divided on the total of sale of industry in fiscal year.
The second hypothesis test:
APit=β0+β1EMit+β2DGOODSit+β3EM*DGOODSit
+β4SIZEit+β5SALEGROWTHi,t+β6AGEi,t
+β7AGE2i,t+β8ROAi,t+β9ARi,t+β10TOBINSQi,t
+β11CASHi,t+β12DEBTi,t
+β13MARKETSHAREi,t+εi,t
EM: real earnings management
4. RESULTS AND DISCUSSION
The population of the research includes the compa-
nies accepted in Securities and Exchange Organization of
Iraq in the period since 2011 until 2016 (1390-1395).
4.1 Sampling Method
In this research in order to acquire an available sta-
tistical population, all of the companies of the statistical
population which possess the features below, have been
selected as the available statistical population:
•Companies must have been accepted in Securities
and Exchange Organization of Iraq before 2011,
and haven’t exited until the end of 2016.
•Companies must not have changed fiscal year dur-
ing the studied period.
•Financial data of companies in the studied period
must be available.
•They must not be financial institutions (banks) and
financial intermediary companies.
The companies accepted in stock exchange were 122
that after applying mentioned features, 35 companies
were analyzed.
4.3 Research Data
According to the results of the Table 1 it seems that
average of the commercial credit is 0.298. The profit sus-
tainability’s average is 0.005. These results show that the
sample Iraqi companies have profitability continuity on
average but the quantity is low. Results also indicate that
the average of real earnings management is 0.008. The
averages of the size of the company and the sale are re-
spectively 9.703 and 0.259. The average age of available
companies are approximately 31 and the averages of nat-
ural logarithm of company’s age and the total of its
squares are respectively 3.358 and 11.419. The averages
of the return of the assets, the ratio of accounts receivable
and the ratio of Tobin’s Q are -0.012, 0.263 and 4.153.
The average of the ratio of cash is 0.163 and those of the
ratio of debt and the market share are 0.395 and 0.113 .In
what follows, the results of normality test indicates that a
low number of variables don’t possess a normal distribu-
tion. But, because of a not so much difference in the aver-
age and the median, and since the number of observations
(210 observations) are more than 30, it can be stated on
the basis of the central limit theorem that variables follow
a pretty normal distribution (Greene, 2011).

Table 1. Descriptive statistics of the current research

Standard
Variable Symbol Average Median Maximum Minimum Skewness Kurtosis Normality
Deviation
Commercial
AP 0.298 0.235 0.261 0.920 0.010 0.930 2.964 0.000
Credit
Profit sustainability PS 0.005 -0.010 0.121 0.380 -0.200 0.966 4.259 0.000
Earnings management EM 0.008 0.010 0.130 0.390 -0.240 0.646 4.295 0.000
Size of the company SIZE 9.703 9.725 0.567 11.290 8.370 0.366 3.692 0.000
Sale growth SG 0.259 0.010 1.097 4.03 -0.980 2.476 9.217 0.000
Age of the company AGE 31.042 26 13.303 70 10 1.254 3.493 0.000
Natural logarithm of
LNAGE 3.358 3.26 0.382 4.25 2.30 0.544 2.960 0.000
company’s age
The total of squares of
AGE2 11.419 10.62 2.657 18.05 5.30 0.808 2.923 0.000
company’s age
Return of assets ROA -0.012 0.02 0.190 0.29 -0.67 -1.637 6.140 0.000
The ratio of accounts
AR 0.263 0.20 0.238 0.95 0.01 1.003 3.312 0.000
receivable
The ratio of Tobin’s Q TQ 4.153 2.215 4.534 16.88 0.36 1.751 5.014 0.000
The ratio of cash CASH 0.163 0.11 0.169 0.68 0.01 1.277 3.806 0.000
The ratio of debt DEBT 0.395 0.25 0.453 1.97 0.02 2.082 7.260 0.000
Market share MS 0.113 0.02 0.209 0.91 0.001 2.673 9.618 0.000
The Effect of Business Diversity on the Relation between Profit Sustainability, Real Earnings Management and Commercial Credit in Companies of Securities and Exchange Organization of Iraq
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE 913

The correlation coefficient between two variables
measures the degree of linearly dependence between
those two. The correlation coefficients of the research’s
main variables are presented in the table below:
According to the results of Table 3, the amount of
the coefficient of determination states that dependent
and control variables explain about 85% of the indepen-
dent variable’s changes. Meaningfulness of Wald statis-
tics (689.21) state the general meaningfulness of the
model related to the first hypothesis of the research.
Data indicate that commercial diversification has a mea-
ningful, positive effect on the companies’ commercial
credit in this model. Furthermore, the results of the first
hypothesis test show that the effect of commercial di-
versification (PS*DGOODS) on the relation between
the profit sustainability and the commercial credit is
positive and meaningful. Therefore, the first hypothesis
is confirmed. In other words, the commercial diversifi-
cation has a positive, meaningful effect on the relation
between the profit sustainability and the commercial
credit. Other results show that in this model, size, return
of assets, the ratio of accounts receivable and the ratio of
Tobin’s Q and the ratio of debt has a positive, meaning-
ful relation with commercial credit. But, the relation

Table 2. Pearson’s coefficient of correlation between the main variables of the research
Variable AP PS EM SIZE SG AGE AGE2 ROA AR TQ CASH DEBT MS
AP 1
PS 0.08 1
EM 0.04 0.15* 1
SIZE 0.15* -0.04 -0.19 1
SG -0.07 0.28* -0.08 0.04 1
AGE 0.19* -0.13 -0.09 0.02 0.02 1
AGE2 0.18* -0.14* -0.10 0.01 0.03 0.99* 1
ROA -0.42* 0.40* 0.15 0.02 0.16* -0.42* -0.42* 1
AR 0.42* 0.03 -0.01 0.26* -0.07 -0.16* -0.17* -0.06 1
TQ 0.22* 0.13 0.04 -0.26* 0.02 -0.13 -0.14* 0.01 0.17* 1
CASH -0.16* 0.18* 0.12 -0.12 0.03 -0.24* -0.24* 0.29* -0.24* -0.12 1
DEBT 0.86* 0.04* 0.01 0.10 -0.04 0.29* 0.29* -0.59* 0.30* 0.10 -0.14* 1
MS 0.00 0.17* -0.04 0.65* 0.09 -0.23* -0.24* 0.26* 0.05 -0.04 0.17* -0.01 1

Table 3. The results of the first hypothesis test

Variable Coefficient Standard Deviation Statistic of z Probability value of z
C -0.901 0.566 -1.59 0.112
PS -0.109 0.076 -1.42 0.155
DGOODS 0.103 0.022 4.71 0.000*
PS* DGOODS 0.156 0.091 1.71 0.088***
SIZE 0.098 0.028 3.49 0.000*
SALEGROWTH -0.004 0.005 -0.93 0.352
AGE -0.053 0.289 -0.18 0.854
AGE2 0.010 0.042 0.24 0.807
ROA 0.138 0.066 2.08 0.038***
AR 0.115 0.045 2.51 0.012**
TOBINSQ 0.008 0.001 4.47 0.000*
CASH -0.010 0.036 -0.28 0.783
DEBT 0.435 0.031 13.73 0.000*
MARKET SHARE -0.127 0.107 -1.19 0.232
The coefficient of determination 0.849
Wald statistic 689.21
The meaningfulness of Wald statistic 0.000*
* Meaningfulness at the percentage error of 1% .
** Meaningfulness at the percentage error of 5%.
*** Meaningfulness at the percentage error of 10%.
Kadhim, Hasan, and Khalbas: Industrial Engineering & Management Systems
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE 914

Table 4. The results of the second hypothesis test

Variable Coefficient Standard Deviation Statistic of z Probability value of z
C -0.873 0.513 -1.70 0.089***
EM -0.074 0.099 -0.75 0.455
DGOODS 0.103 0.019 5.19 0.000*
EM*DGOODS 0.132 0.108 1.22 0.222
SIZE 0.098 0.028 3.52 0.000*
SALEGROWTH -0.003 0.005 -0.60 0.547
AGE -0.065 0.257 -0.25 0.799
AGE2 0.011 0.038 0.30 0.767
ROA 0.143 0.060 2.36 0.018**
AR 0.112 0.045 2.44 0.015**
TOBINSQ 0.007 0.001 4.22 0.000*
CASH -0.018 0.037 -0.49 0.623
DEBT 0.438 0.030 14.32 0.000*
MARKET SHARE -0.121 0.106 -1.13 0.257
The coefficient of determination 0.849
Wald statistic 715.49
The meaningfulness of Wald statistic 0.000 *
* Meaningfulness at the percentage error of 1%.
** Meaningfulness at the percentage error of 5%.
*** Meaningfulness at the percentage error of 10%.

between other control variables and the commercial cre-
dit is not meaningful.
Regarding the data of Table 4, the amount of the
coefficient of determination indicates that dependent and
control variables explain approximately 85% of the inde-
pendent variable’s changes. The meaningfulness of Wald
statistic (715.49) shows the general meaningfulness of the
model related to the second hypothesis of the research.
Results prove that in this model, the commercial diversi-
fication has a positive, meaningful effect on the commer-
cial credit. Besides, the data of the second hypothesis of
the research show that the effect of the commercial diver-
sification (EM*DGOODS) on the relation between the
real earnings management and the commercial credit is
not meaningful. Therefore, the second hypothesis of the
research is not accepted. The results also indicate that in
this model, size, return of assets, the ratio of accounts
receivable and the ratio of Tobin’s Q and the ratio of debt
has a positive meaningful relation with the commercial
credit. But, there seems no meaningful relation between
other control variables and the commercial credit.
5. CONCLUSION
5.1 The First Hypothesis
The test of the effect of companies’ commercial cre-
dit on the relation between the profit sustainability and the
commercial credit has been done. The results of the first
hypothesis show that the commercial diversification has a
positive, meaningful effect on companies’ commercial
credit. Furthermore, the results of the research’s first hy-
pothesis indicate that the effect of commercial diversifica-
tion (PS*DGOODS) on the relation between the profit
sustainability and the commercial credit is positive and
meaningful. So, the first hypothesis is confirmed. In other
words, the commercial diversification has a positive,
meaningful effect on the relation between the profit sus-
tainability and the commercial credit. Other results show
that in this model, size, return of assets, the ratio of ac-
counts receivable and the ratio of Tobin’s Q and the ratio
of debt has a positive meaningful relation with the com-
mercial credit. But, according to the acquired results
which reject this hypothesis the relation between other
control variables and the commercial credit is not mea-
ningful.
5.2 The Second Hypothesis
In this hypothesis, the testing of the effect of the
commercial credit on the relation between the real earn-
ings management and the commercial credit was con-
ducted. The results of the second hypothesis prove that
the commercial diversification has a positive, meaningful
effect on the commercial credit. Besides, the data of the
second hypothesis indicate that the effect of the commer-
cial diversification (EM*DGOODS) on the relation be-
tween the real earnings management and the commercial
credit is not meaningful. Therefore, the second hypothesis
of the research is not confirmed. Results also show that in
The Effect of Business Diversity on the Relation between Profit Sustainability, Real Earnings Management and Commercial Credit in Companies of Securities and Exchange Organization of Iraq
Vol 19, No 4, December 2020, pp.908-915, © 2020 KIIE
this model, size, return of assets, the ratio of accounts
receivable and the ratio of Tobin’s Q and the ratio of debt
has a positive meaningful relation with the commercial
credit. But, there seems no meaningful relation between
other control variables and the commercial credit. Now,
the relation between other control variables with the
commercial credit is not meaningful.
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