The study of accruals and conservatism effect on investment efficiency

This paper by using adjusted model of biddle et al (2009), conditional relationship between conservatism and accrual quality on investment efficiency has been tested in Tehran stock exchange (TSE) during 2006-2009. Investment efficiency can be defined as identifying, funding and implementing all positive NPV investment projects. Underinvestment is defined as rejecting positive NPV investment projects and undertaking negative NPV investment projects is defined as overinvestment. In this paper we use khan and watts (2009) model of conservatism. AQ is the deferential amount of cash income and accounting income. The research hypothesis’s is tested by multivariable simple regression using OLS estimator on panel data base. The result shows that firms report more conservative, make more efficient investment decisions. But there is no evidence that AQ significantly reduces either under or overinvestment. Our results add to a growing stream of literature suggesting that eliminating conservatism from accounting regulatory frameworks may lead to undesirable economic consequences. And can be benefited to accounting standard sitter and stock exchange market.