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Investigating Effect of Accounting Conservatism and Earning Quality on Reaction of Investors to Cash Stocks of Companies Accepted in Tehran Stock Exchange

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  • Bijan Abedini

    ()

  • Mohammad Hosein Ranjbar

    ()

  • Azadeh Mozaffari

    ()

Abstract

Managers tend to hide bad news about the performance of companies and potentially pretend that they are in a desirable state. In companies with conservative reporting environment, there are more limited management opportunities and motives for hiding bad news. Therefore, in these companies, projects with negative net current value are more probably identified and set aside in a timely manner. Main goal of the present research was to study effect of accounting conservatism and earning quality on reaction of investors to cash holding level in the companies accepted in Tehran Stock Exchange. The statistical sample included 160 companies accepted in Tehran Stock Exchange from 2007 to 2011. The data were analyzed using regression method, the results of which indicated that financial reporting environment and change in quality of the published information had no effect on the shareholders' reaction to cash balance. It also seemed that changes in cash balance were followed by users of financial statements only when the company reduced the reported earnings due to accounting conservative procedures.

Suggested Citation

  • Bijan Abedini & Mohammad Hosein Ranjbar & Azadeh Mozaffari, 2014. "Investigating Effect of Accounting Conservatism and Earning Quality on Reaction of Investors to Cash Stocks of Companies Accepted in Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(1), pages 331-339, January.
  • Handle: RePEc:hur:ijaraf:v:4:y:2014:i:1:p:331-339
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    References listed on IDEAS

    as
    1. Francis, Jere R. & Martin, Xiumin, 2010. "Acquisition profitability and timely loss recognition," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 161-178, February.
    2. Edward Lee & Ronan Powell, 2011. "Excess cash holdings and shareholder value," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(2), pages 549-574, June.
    3. Michael Faulkender & Rong Wang, 2006. "Corporate Financial Policy and the Value of Cash," Journal of Finance, American Finance Association, vol. 61(4), pages 1957-1990, August.
    4. Zhang, Jieying, 2008. "The contracting benefits of accounting conservatism to lenders and borrowers," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 27-54, March.
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