Firm Growth and its Impact on Conservative Reporting Behavior of Managers

From the point of agency theory view, that relates the managers’ salaries and benefits to the reported income, managers have strong motivations to hide bad news that can cause the income reduction. Therefore, conservatism can be considered as a mechanism to control managers’ motivations for over-reporting income. From the point of capital market and management view, firm growth is an important variable which can affect managerial behavior and managers reporting. Therefore, this research studies the effect of firm growth on accounting conservatism based on Basu conservatism model. The statistical community of this study is companies listed on the Tehran stock Exchange. 81 firms have been selected as the statistical sample based on systematic sampling method. The period of study is a nine-year period (1379-1387) and cross-sectional regression used as statistical method. The research findings confirmed the Basu model is valid and conservatism for companies that have low growth is necessary. The research findings also show the adjusted Basu model is statistically meaningful with respect to firm growth. But unlike expectations, the research findings show increasing firm growth is not effective on accounting conservatism.