The Relationship between Managements’ Forecasted EPS and Risk in the Companies Listed in Tehran Stock Exchange

Abstract

This study examines the relationship between accounting conservatism on the financial risks, so that a detailed study of this relationship due to the combined balance sheet and profit and loss point of view, according to this view, conservative accounting is an accounting concept that leads to a decrease in profit accumulated through late recognition of income and faster recognition of expense, low assessment and high evaluation of assets that determines the role of accounting conservatism. Accounting conservatism means more timely recognition of bad news than good news on earnings. In this study, to calculate financial risks, financial leverage, the current ratio and the size of the company has been used. Research sample includes 53 companies listed in the Tehran Stock Exchange during 2008 to 2013. The results of testing hypotheses, showed that between conservatism and financial risk, there is a significant positive relationship, however, that in none of the cases, there is no a significant relationship between conservatism and leverage ratio and current ratio and total assets.