Evaluating the Effect of Accounting Conservatism on the Correction Process of Accruals Anomaly

Yadegari, Saeid; Hashemi, Seyed Abbas; Amiri, Hadi

doi:10.22054/qjma.2019.10414

Document Type : Research Paper

Authors

¹ Ph.D Candidate of Accounting, University of Isfahan, Isfahan, Iran

² Associate Professor of Accounting, University of Isfahan, Isfahan, Iran

³  Assistant Professor of Economics, University of Isfahan, Isfahan, Iran.

https://doi.org/10.22054/qjma.2019.10414

Abstract

One of the main reasons for the accruals anomaly is the lower persistence of accrual component of earnings to its cash component. Conservatism, as an accounting convention, increases the reliability of accruals, therefore, it is predicted that conservatism increases accrual persistence. In this study, the effects of different degrees of accounting conservatism on the persistence of accrual component of earnings were investigated. Consequently, the role of accounting conservatism in the correction of the accruals anomaly was also evaluated which so far, no study has been conducted on this issue in Iran. Therefore, two hypotheses were developed which were statistically examined through multivariable regression models using combined data. Accordingly, using systematic removal method, 105 companies accepted in Tehran Stock Exchange during a 10 year period from 2007 to 2016 were selected as the statistical sample. It was found that accruals level showed a negative influence on the firm returns indicating the presence of accruals anomaly. Additionally, the results revealed that higher degrees of conservatism increased the persistence of accruals and as a result contributed to the correction process of accruals anomaly. The obtained results are consistent with the theoretical foundations of this research.

Keywords

References

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Empirical Studies in Financial Accounting

Evaluating the Effect of Accounting Conservatism on the Correction Process of Accruals Anomaly

References

References

Volume 16, Issue 62
July 2019
Pages 69-95

Evaluating the Effect of Accounting Conservatism on the Correction Process of Accruals Anomaly

References

References

Volume 16, Issue 62July 2019Pages 69-95

Volume 16, Issue 62
July 2019
Pages 69-95