Empirical Studies in Financial Accounting

Abstract Abstract

Focusing on competitive strategies is one of the key factors in creating sustainable advantages and increasing firms’ value. Among these, conditional conservatism, as a qualitative characteristic of financial reporting, can influence investors’ perceptions of a company’s performance. The purpose of this study is to examine the moderating effect of conditional conservatism on the relation between competitive strategies (differentiation and cost leadership) and firms’ value. This research is applied in nature and employs a quantitative approach. The statistical population includes companies listed on the Tehran Stock Exchange during the years 2016 to 2023. To test the hypotheses, multivariate regression models and panel data methods were used. The results show that the differentiation strategy has a positive and significant relationship with firms’ value. Conditional conservatism has a negative relationship with firm's value, as it leads to lower recognition of accounting earnings and consequently increases market value. Furthermore, conditional conservatism intensifies the negative effect of differentiation strategy on firm's value. In contrast, the cost leadership strategy has a positive and significant relationship with firm's value, and conditional conservatism strengthens this relationship. The findings suggest that alignment between competitive strategies and the level of conservatism in financial reporting can influence the market’s perception of firm performance and ultimately affect the firm’s value.

Keywords: Conditional conservatism, differentiation strategy, cost leadership strategy, Firms’ value.

1. Introduction

Focusing on competitive strategies is one of the essential factors in creating sustainable advantage, increasing productivity, and enhancing the value of companies' shares. In the turbulent environment of the capital market, companies' strategic decisions must be aligned with the characteristics of financial reporting in order to maintain investor confidence. On the other hand, conditional conservatism, as one of the qualitative characteristics of financial reporting, can affect how investors perceive a company's performance by identifying losses more quickly than profits. This study aims to investigate the moderating role of conditional conservatism in the relationship between competitive strategies (including differentiation and cost leadership) and companies' share value. The results of this study can help to more accurately explain the interaction between strategic management decisions and financial reporting policies in creating value for shareholders.



Research hypotheses

The first hypothesis is that differentiation strategy has a negative and significant relationship with the company's value.

The second hypothesis is that conditional conservatism has a negative and significant relationship with the company's value.

The third hypothesis is that conditional conservatism has a negative and significant effect on the relationship between differentiation strategy and the company's value.

The fourth hypothesis is that cost leadership strategy has a positive and significant relationship with the company's value.

The fifth hypothesis is that conditional conservatism has a positive and significant effect on the relationship between cost leadership strategy and the company's value.

2. Literature Review and Hypothesis Development

In companies with more conservative accounting policies, financial information tends to understate the actual profitability of differentiated activities. This can lead to reduced investor confidence in the effectiveness of the differentiation strategy, especially in markets where financial analysts play an important role in the formation of market value (Ahmed & Duellman, 2007; Obiedallah & El Mahdy, 2025). The reduction in reported profits due to conditional conservatism may cause the market to underestimate the performance of companies with a high differentiation strategy and, as a result, their value is lower than that of similar companies with less conservative reporting policies (Talawa, 2024; Luo, 2025).

Finally, it can be concluded that conditional conservatism, despite its role in improving the reliability of financial reporting, may have a negative effect on the market value of the company in the context of a differentiation strategy. Since conservatism prevents the full reflection of the benefits of innovation and differentiation in financial statements, investors will not be able to fully understand the strategic value of the company. Therefore, conditional conservatism is expected to weaken the relationship between differentiation strategy and company value by moderating this relationship and having a significant negative effect on it (Wu et al., 2025; Obiedallah & El Mahdy, 2025).

Companies that observe conditional conservatism have a lower cost of capital by reducing information asymmetry (Ball, Kothari, & Nikolaev, 2013; Basu, 1997). This can help companies with a cost leadership strategy to attract cheaper financing sources and, as a result, reduce the cost of capital, strengthening the positive impact of this strategy on firm's value (Watts, 2003; Hill & Jones, 2012).

As a result, conditional conservatism strengthens and makes the relationship between cost leadership strategy and firm's value more sustainable by increasing transparency, reducing information risk, and improving investor confidence.

3. Methodology

The present study is of an applied type and has been conducted with a quantitative approach. The statistical population includes companies listed on the Tehran Stock Exchange during the years 2016 to 2023. The required data were extracted from financial statements and market information and analyzed using multivariate regression models and panel data methods. In these models, the direct effect of competitive strategies and conditional conservatism as well as their interactive effect on the value of companies were examined.

4. Results

Findings: The results show that the differentiation strategy has a positive and significant relationship with firms’ value. Conditional conservatism has a negative relationship with firm's value, as it leads to lower recognition of accounting earnings and consequently increases market value. Furthermore, conditional conservatism intensifies the negative effect of differentiation strategy on firm's value. In contrast, the cost leadership strategy has a positive and significant relationship with firm's value, and conditional conservatism strengthens this relationship. The findings suggest that alignment between competitive strategies and the level of conservatism in financial reporting can influence the market’s perception of firm performance and ultimately affect the firm’s value.

5. Conclusion

Conclusion: Overall, the results indicate that conditional conservatism plays an important moderating role in the relationship between competitive strategies and firm's value. Conservatism exacerbates the negative effect of differentiation strategy and strengthens the positive effect of cost leadership strategy. From a theoretical perspective, these findings emphasize the importance of aligning accounting policies with the strategic orientations of the firm and, from a practical perspective, provide guidance for managers, accountants, and investors in selecting appropriate strategies and financial reporting practices to maximize the firm's market value.

Abstract Compliance with social and environmental responsibilities is one of the requirements of the current competitive era, and the competitive pressure on companies in this situation imposes costs that can affect financial performance. This research investigates the moderating role of competitive strength in the relationship between social and environmental responsibilities and financial performance. The statistical sample for this research consists of companies listed on the Tehran Stock Exchange between 2016 and 2021. Using a regular screening method, 108 companies were selected as samples. After checking the classical assumptions of regression, the panel data model with fixed effects was used. The results showed that social performance has a positive relationship with financial performance. Competitive strength has a negative moderating effect on the relationship between social performance and financial performance. Environmental performance also has a positive relationship with financial performance, and competitive strength has a negative moderating role in this relationship. According to the coefficients of the variables, the social dimension of the company is more effective in increasing performance than the environmental dimension. Introduction A balance must be established between the modernization process and social and environmental concerns. Additionally, society's expectations regarding moral, legal, economic, and public interests require companies to commit to the communities in which they operate (Porter & Kramer, 2011). On the other hand, the growing interest of companies, especially large, national, and multinational companies, to demonstrate better environmental and social performance as part of their corporate social responsibility policy is often reflected in their management structures and investment policies. In line with the social responsibility policy, companies invest in the environmental field for three reasons: complying with environmental and social regulations and standards, improving company conditions, creating a favorable image of the company for society, and gaining access to other markets (Zaid et al., 2020). Social responsibilities have been utilized in various businesses to achieve a competitive advantage and create stable relationships with society. In this regard, the theory of social responsibilities refers to the combined pursuit of economic progress, social equality, and environmental protection. The nature of social responsibilities is the interconnected and mutual realization of financial, social, and environmental goals (Donkor et al., 2023). A company's environmental responsibility refers to its organizational behavior and commitment to the natural environment, which symbolizes the company's environmental ethics (Dilla et al., 2019). Several studies have shown conflicting results regarding a firm's environmental performance and financial performance. Some previous studies have shown that environmental responsibility improves long-term performance (Arda et al., 2019; Gilal et al., 2019). In addition, green knowledge and innovation promote an environmental orientation that allows companies to improve performance (Atan et al., 2018). On the contrary, since introducing environmental initiatives is costly (Zhang et al., 2019), evidence has shown that corporate environmental responsibility does not always lead to positive results (Chollet & Sandwidi, 2018). Based on a sample of companies listed on the Tehran Stock Exchange, this study examines the role of competitive strength in the relationship between firms’ social and environmental performance and financial performance. Literature Review Green theory emphasizes that community care helps organizations in sustainable development. Hence, government regulations and customer pressure encourage companies to adopt such practices in emerging markets. Environmental responsibility allows companies to improve their competitive advantages and dynamic capabilities (Arda et al., 2019). Incorporating environmental values supports environmental business in the long term (Gill et al., 2019). In general, green knowledge and innovation promote an environmental orientation and green resource management in companies, subsequently allowing them to improve their performance (Atan et al., 2018; Zhang et al., 2019). Based on this, this research expects to improve the effectiveness of a company by using organizational resources for environmental performance while simultaneously improving social performance. Proponents of the positive effects of CSR argue that CSR enhances corporate value and image, as well as develops brand positioning, reputation, and corporate image, which in turn enhances financial performance in the long run (Hill, 2020). It is often assumed that the proper use of economic, social, and governance standards requires higher financial efficiency and performance. Managers of firms with fewer resources have fewer opportunities to divert resources to their advantage (Kumar et al., 2023). They are more concerned about their presence in the market and maintaining their market share in the industry, and they consider themselves less socially responsible towards the company, market, and society (Jiang et al., 2019). The moderating power of competition encourages companies to act in socially responsible ways and helps maintain their reputation (Chih et al., 2010; Graafland, 2018). The intensity of competition affects decisions related to social responsibilities, including social and environmental performance (Jiang et al., 2019). Different levels of competition affect the relationship between the social and environmental performance of companies. Social practices and environmental ethics are intangible assets for a company in capital markets, and these assets change with shifts in competition levels. In particular, considering the role of competitive strength, the relationship between social performance and environmental performance with financial performance changes as the level of competition fluctuates (Saeed et al., 2023). Therefore, the following hypotheses can be proposed: Hypothesis 1: There is a positive relationship between social performance and financial performance. Hypothesis 2: Competitive strength moderates the relationship between social performance and financial performance. Hypothesis 3: There is a positive relationship between environmental performance and financial performance. Hypothesis 4: Competitive strength moderates the relationship between environmental performance and financial performance. Methodology This research is practical and post-event, conducted using the secondary data collection method. The information from companies was collected by referring to the Codal.ir website and using their financial statements and attached notes. The study period covers 2016 to 2021. Before testing the proposed model and hypotheses, the assumptions of the regression models were checked. The Chow test, Hausman test, and variance heterogeneity test indicated that the panel data model with fixed effects is suitable for the models of this research. In this study, the Breusch-Pagan-Godfrey test was used to check for heteroscedasticity. The results of the heteroscedasticity analysis show that the residuals of the normal regression models do not have constant variance, indicating heteroscedasticity, and the generalized least squares method was used to address this issue. Results The variable coefficient of social performance in models 1 and 2 is 0.0092 and 0.019, respectively, and is significant at the 99% confidence level in both models. There is a positive relationship between social performance and financial performance, meaning that compliance with social responsibilities leads to an increase in financial performance. However, in model 2, the moderating variable (strength of competition) reverses the relationship between social performance and financial performance. At the 99% confidence level, the strength of competition has a negative effect on the relationship between social performance and financial performance. The variable coefficient of environmental performance in models 3 and 4 is 0.003 and 0.004, respectively, and is significant at the 95% confidence level. There is a positive relationship between environmental performance and financial performance, indicating that compliance with environmental responsibilities leads to an increase in financial performance. In model 4, the sign of the coefficient for the moderating variable (strength of competition) is positive, meaning that the strength of competition has a positive relationship with financial performance. However, the moderating variable reverses the relationship between environmental performance and financial performance, so at the 99% confidence level, the strength of competition has a negative effect on the relationship between environmental performance and financial performance. Conclusion Disclosure of social performance leads to increased financial performance. The disclosure of social performance by the company, as a positive signal to the market and shareholders, directly benefits the improvement of the company’s reputation and value. Additionally, this disclosure can indirectly affect the company’s financial performance through mediators such as competitive advantage, reputation, customer satisfaction, access to capital, and environmental resource efficiency. The company's competitive advantages are one of the important dimensions of market characteristics that company leaders should consider in their efforts to make optimal decisions to maximize financial performance. When there are no competitive pressures, managers may become lax in their duties, leading to poor management and high agency costs. Disclosure of environmental performance also leads to increased financial performance. Compliance with environmental responsibilities and publication of periodic reports raise awareness and judgment among society and stakeholders, thereby strengthening the company's brand. To ensure that environmental goals are met, environmental functions such as the development of environmental policies and programs, setting quantitative and measurable goals for reducing environmental pollution, implementing pollution prevention obligations, measuring and evaluating potential environmental effects, revising executive plans, and making reforms must be carried out. Competitive strength has a negative moderating role in the relationship between environmental responsibilities and financial performance. Today, governments support and encourage companies to fulfill social and environmental responsibilities. On the other hand, when facing external pressures, companies rely on government support and try to attract technical and financial incentives to carry out social and environmental responsibilities at a lower cost and more easily. By actively implementing social and environmental responsibilities, companies can communicate with governing bodies and actively participate in the development and approval of environmental responsibility programs. These actions help companies gain external legitimacy and promote their corporate brand. In this way, by taking advantage of these factors, companies can increase profitability while raising product prices and consolidating customer loyalty. Additionally, emphasizing the reduction of physical waste through environmentally friendly solutions can lay the groundwork for reducing costs and increasing profitability.    

Abstract In this study, the impact of CEO’s overconfidence on the relationship between cash holding and excess returns is investigated in companies listed in Tehran Stock Exchange during the years 2011-2018. For CEO’s overconfidence, overinvestment in assets, and for excess returns, the difference between a firm’s stock return and the return of the firm’s benchmark portfolio over the same period is used. By systematic sampling, a sample of 157 companies is selected, and the models have run based on panel data with fixed effects. The results have shown that (1) cash holding has a positive and significant impact on excess returns, (2) CEO’s overconfidence has a negative and significant impact on excess returns, and lastly, (3) CEO’s overconfidence has a negative and significant impact on the relationship between cash holdings and the excess returns. With increasing CEO’s overconfidence, the excess returns will be reduced. Overconfident managers keep cash at a higher level that leads to overinvestment. It consequently decreases excess returns.