Iranian Financial Engineering Association(IFEA) International Journal of Finance & Managerial Accounting 2588-4379 12 45 2025 03 01 The Moderating Role of Internal Control on the Impact of Financial Transparency and Default Risk in Companies Listed on the Tehran Stock Exchange 225 236 24062 10.22034/ijfma.2025.78354.2243 EN Mohsen Hashemigohar Department of Accounting, Shahr-e- Qods branch, Islamic Azad university, Tehran, Iran 0000-0003-1058-1606 MAHBOOBEH LAAL E AALY Master of Accounting Student, Shahr-e- Qods branch, Islamic Azad university, Tehran, Iran Seyedmohammadali Tabatabaeimirakabad Master of Business management marketing orientation Student, Shahr-e- Qods branch, Islamic Azad university, Tehran, Iran Journal Article 2025 03 09 This study explores the effect of financial transparency on default risk among companies listed on the Tehran Stock Exchange (TSE), focusing on the moderating role of internal control systems. Based on agency and signaling theories, transparency is viewed as a means to reduce information asymmetry and increase investor trust, thereby lowering the probability of default. Internal control mechanisms are proposed to reinforce the reliability of financial disclosures and enhance their impact. Using a quantitative approach, this research analyzes data from 115 firms over the period 2016–2022. Financial transparency is measured by cumulative discretionary accruals, and default risk is assessed using the Falmer Index. The presence of an internal audit unit over a five-year period is used as a proxy for internal control. Multiple regression models test both direct and moderating effects. The results reveal a significant positive relationship between financial transparency and default risk in Hypothesis 1, suggesting that in this context, increased transparency may initially expose underlying risks. Furthermore, internal control significantly strengthens this relationship by amplifying the risk-increasing effect of financial transparency, indicating that in the presence of robust controls, transparency's association with higher default risk becomes even more pronounced. These counter-intuitive findings underscore the complex dynamics in emerging markets like Iran, where enhanced disclosure, even with strong internal controls, might initially heighten perceived vulnerabilities rather than mitigate them. The study offers crucial implications for regulators, policymakers, and investors, highlighting the need for a nuanced understanding of governance and disclosure mechanisms to genuinely improve financial stability. http://www.ijfma.ir/article_24062_ebd83293e15f358a34de4f3e805d8469.pdf