The Relationship of Accounting Conservatism with Market Responsess and Firms Value

Document Type : Research Paper

Authors

1 Graduate Student of Accounting at Islamic Azad University, East Azarbaijan Branch, Researcher

2 Assistant Professor, Department of Accounting, Bonab Islamic Azad University

Abstract

Accounting conservatism, leading to increases in demand for stock buying in companies with higher level of conservatism, is profitable for capital market participants, particularly shareholders. Increases in demand may lead to an increase in share prices in its own right which will inevitably trigger market reaction and boost company value. This paper investigates the relationship between accounting conservatism, market reaction and value of the companies accepted at stock exchange. Ball and Shivakumar (2005) model and Givoly and Hayn model (2000) were adopted in order to measure the degree of conditional and unconditional conservatism, respectively. The statistical population consists of 68 companies accepted at Tehran stock exchange, during the period of 5 years (1387-1392), which are selected by using systematic elimination procedure. Simple linear regression was used to test research hypothesis. The results indicated a relationship between market reaction and company value. In addition, return on assets, from among control variables in regression, had a positive relation with market reaction. A positive and meaningful relation was indicated between return on assets, book-to-market ratio, liquidity ratio and company value.

Keywords: conditional conservatism, unconditional conservatism, market reaction and company value.

Keywords

Main Subjects

References

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Journal of Accounting and Social Interests
Volume 7, Issue 4 - Serial Number 27
February 2018
Pages 99-126

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History

  • Receive Date: 28 April 2016
  • Revise Date: 20 April 2017
  • Accept Date: 03 May 2017

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