Abstract:
The present study is intended to examine the effect of accounting conservatism on firms’ non-profitability in Tehran Stock Exchange in 48 unprofitable firms and 57 profitable firms over a period of seven years from 2001 to 2007. This study was conducted according to Givoly and Hayn model to measure accounting conservatism index in non-profitable and profitable) firms. Data analysis performed with logistic regression. The results of study showed that there is significant and direct relationship between unprofitability and accounting conservatism. It was also concluded that, unprofitability is positively correlated with financial leverage, and is negatively correlated with firm size and profitability index. In addition, the results of the study showed that there was not any significant relationship between sales growth and non-profitability; moreover there is a direct relationship between financial leverage and non-effectiveness of sales growth in non-profitable firms. The results showed that accounting conservatism is an effective mechanism to limit the bias behavior of managers in overstatement of earnings in non-profitable firms and it consequently increase the firm value of non-profitable firms in long term.
Machine summary:
profitability in An Emerging Market: Case of Iran Receipt: March 5 , 2011 Acceptance: April 7 , 2011 Hashem Nikoomaram Department of Business Management, Science and Research Branch, Islamic Azad University Bahman Banimahd Department of Business Management, Science and Research Branch, Islamic Azad University Niloufar Mirsepasi Department of Business Management, Science and Research Branch, Islamic Azad University(Corresponding Author) Abstract The present study is intended to examine the effect of accounting conservatism on firms’ non-profitability in Tehran Stock Exchange in 48 unprofitable firms and 57 profitable firms over a period of seven years from 2001 to 2007.
This study was conducted according to Givoly and Hayn model to measure accounting conservatism index in non-profitable and profitable) firms.
The results showed that accounting conservatism is an effective mechanism to limit the bias behavior of managers in overstatement of earnings in non-profitable firms and it consequently increase the firm value of non-profitable firms in long term.
Accounting conservatism, Non-profitable firms, Management performance 57 1- Introduction The relationship between accounting conservatism and unprofitability of the firms listed in Tehran Stock Exchange (TSE) is being analyzed in the this study.
According to previous studies, there is direct and significant relationship between accounting conservatism and non-profitability (Givoly, D.
The difference between the present and previous studies is that this paper examines the relationship between accounting conservatism and non-profitability in a less developed economic environment and in an emerging market.
The findings show that accounting conservatism, profitability index, firm size and financial leverage are different in two groups of firms.