Focusing on competitive strategies is one of the key factors in creating competitive advantages and increasing firm 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 relationship between competitive strategies (differentiation and cost leadership) and firm value. This research is applied in nature and employs a quantitative approach. The statistical population includes companies listed on the Tehran Stock Exchange from 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 firm value. Conditional conservatism has a negative relationship with firm value, as it leads to the lower recognition of accounting earnings and consequently increases market value. Furthermore, conditional conservatism intensifies the negative effect of the differentiation strategy on firm value. In contrast, the cost leadership strategy has a positive and significant relationship with firm value, and conditional conservatism strengthens this relationship. The findings suggest that the alignment between competitive strategies and the level of conservatism in financial reporting can influence the market’s perception of firm performance and ultimately affect firm value.
Conditional conservatism, Cost leadership strategy, Differentiation strategy, Firm value
1. Introduction
Focusing on competitive strategies is one of the essential factors in creating sustainable competitive advantages, increasing productivity, and enhancing firm value. In the turbulent environment of capital markets, companies' strategic decisions must be aligned with the characteristics of financial reporting 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 recognizing losses more quickly than gains. This study aims to investigate the moderating role of conditional conservatism in the relationship between competitive strategies (including differentiation and cost leadership) and firm value. The results of this study can help provide a more accurate explanation of the interaction between strategic management decisions and financial reporting policies in creating value for shareholders.
Research Hypotheses
The first hypothesis is that the differentiation strategy has a negative and significant relationship with firm value.
The second hypothesis is that conditional conservatism has a negative and significant relationship with firm value.
The third hypothesis is that conditional conservatism has a negative and significant moderating effect on the relationship between differentiation strategy and firm value.
The fourth hypothesis is that cost leadership strategy has a positive and significant relationship with firm value.
The fifth hypothesis is that conditional conservatism has a positive and significant moderating effect on the relationship between the cost leadership strategy and firm value.
2. Literature Review and Hypothesis Development
In companies with more conservative accounting policies, financial information tends to understate the actual profitability of differentiation-related 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 determining 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 pursuing a strong differentiation strategy and, as a result, may lead to lower firm values than those of comparable companies with less conservative reporting policies (Talawa, 2024; Luo, 2025).
Therefore, it can be concluded that conditional conservatism, despite its role in improving the reliability of financial reporting, may have a negative effect on firm value in the context of a differentiation strategy. Since conservatism may prevent the full reflection of the benefits of innovation and differentiation in financial statements, investors may not be able to fully assess the strategic value of the company. Therefore, conditional conservatism is expected to weaken the relationship between the differentiation strategy and firm value, resulting in a significant negative moderating effect(Obiedallah & El Mahdy, 2025; Wu et al., 2025).
Companies that apply conditional conservatism may experience a lower cost of capital due to reduced information asymmetry (Ball, Kothari, & Nikolaev, 2013; Basu, 1997). This can help companies pursuing a cost leadership strategy access lower-cost sources of financing and thereby strengthen the positive impact of this strategy on firm value (Hill & Jones, 2012; Watts, 2003).
As a result, conditional conservatism may strengthen the positive relationship between the cost leadership strategy and firm value by increasing transparency, reducing information risk, and improving investor confidence.
3. Methodology
The present study is applied in nature and employs a quantitative approach. The statistical population includes companies listed on the Tehran Stock Exchange from 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 effects of competitive strategies and conditional conservatism, as well as their interaction effects between them, on firm value were examined.
4. Results
The results show that the differentiation strategy has a positive and significant relationship with firm value. Conditional conservatism has a negative relationship with firm value. Furthermore, conditional conservatism moderates the relationship between the differentiation strategy and firm value. In contrast, the cost leadership strategy has a positive and significant relationship with firm value, and conditional conservatism strengthens this relationship. The findings suggest that the alignment between competitive strategies and the level of conservatism in financial reporting can influence the market’s perception of firm performance and ultimately affect firm value.
5. Conclusion
Overall, the results indicate that conditional conservatism plays an important moderating role in the relationship between competitive strategies and firm value. Conservatism weakens the relationship between the differentiation strategy and firm value and strengthens the positive relationship between the cost leadership strategy and firm value. From a theoretical perspective, these findings emphasize the importance of aligning accounting policies with firms’ strategic orientations and, from a practical perspective, provide guidance to managers, accountants, and investors on selecting appropriate strategies and financial reporting practices to maximize firm market value.