The effect of conservatism on accrual and stock return

Abstract

According to representation theory, hope of future good news stimulates the managers to postepone bad economic news in order to gain extra return. But in fact conservatism in accounting, as an influential control mechanism in identifying the good versus bad economic news, prevent the managers from over-optimism and provides a framework for identifying economic affairs. Therefore, it is the intention of this research to study the aforementioned challenge through analyzing the relation between conservatism, accrual persistence asymmetry and stock return. Conservatism is considered as independent variable of the research and accrual persistence asymmetry and stock return as dependent variables. Moreover, Basu’s model its used for measuring conservatism and to control risk, stock return is moderated in extent. Admitted firms in Tehran’s Bond Exchange from 2009 to 2015 constitude the date of the present research from which a sum of 66 firms (462 year-firm) are placed within the sample data of this research. The assumption of the research are tested via analyzing coefficient variables?regression modeling findings of the research suggest that there exists no meaningful relation between resistance of accrual items and stock return and another analysis rejected the existence of such relation has been rejected which suggested that law makings and standards are weak in a way that provide the ground for manipulating the real activities altimately leading to increased operational risks.