CConditional Accounting Conservatism and Financial Flexibility

Accounting conservatism has been a challenging subject during the last century. Accounting researchers examined the advantages and disadvantages of this financial reporting characteristic. The advocates suggest that conservatism helps the owners to control the managers by mitigating their ability in opportunistic behaviors. On the other hand, the critics suggest that accounting conservatism reduce the firm's available financial resources by reducing net assets and earnings. This research examines the relation between conditional accounting conservatism and financial flexibility. Data are analyzed using multivariate linear regression; 2 proxies of conservatism, Basu (1997) and Ball and Shivakumar (2005); and 3 criteria of financial flexibility, cash balance, financial leverage and dividends. The sample consists of 80 firms listed in TSE. The results show no significant relation between conditional accounting and financial flexibility.