Document Type : Research Paper
Authors
1 Assistant professor, Accounting Department , Faculty of Economics, Management and Administrative Sciences, Semnan University, Semnan, Iran.
2 Department of Accounting, Faculty of Economics, Management and Administrative Sciences, Semnan University, Semnan, Iran.
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.
Keywords
- Conditional conservatism
- competitive strategies
- differentiation strategy
- cost leadership strategy
- Firms’ value
Main Subjects
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