The Investigation of Conservatism in Accounting Earnings and Its Influencing Factors

Conservatism in financial reporting is a major convention and shows the caution in identifying and measuring the level of revenue and expense (profit and loss)، assets and liabilities. This research investigated existence of conservatism in accounting earnings and its influential factors. This study examines relationship between conservatism with firm size، the market-to-book ratio، the degree of financial leverage، the idiosyncratic volatility، investment cycle and firm age. Also، influence of behavior asymmetric conservatism in identifying good and bad news (profit and loss) on variables of operating accruals، non operating accruals and cash flows from operating activities، were studied. Statistical sample consists of 100 companies and 400 observations company-year during 2006 to 2009. The result showed that، accounting earnings was more sensitive than negative stock returns versus positive stock returns. Also، the relationship between conservatism with firm size was negative and significant. Moreover، the relation between conservatism with market-to-book ratio، the degree of financial leverage، the idiosyncratic volatility، investment cycle and firm age was positive and significant. On the other hand، because of the accounting earnings was affected from accruals، relationship between conservatism with operating accruals، non operating accruals and cash flows from operating activities were studied. The result showed that، the most asymmetric timeliness of accounting earning description with accruals، which were under management control.