Relationship between Excess Cash and Conditional Conservatism with Emphasis on the Moderating Role of Net Cash Returned to Debtholders and Equityholders

The existence of debt contracts and market monitoring on companies with higher financial leverage, as well as the funds used to repay debts and pay dividends, will cause relative decrease in the demand for conservatism and adjust the relationship between conservatism and excess cash. Therefore, the main goal of the current research is to investigate the relationship between excess cash and conditional conservatism with emphasis on the moderating role of net cash returned to debtholders and equityholders. To achieve the purpose of the research, a statistical sample including 140 companies listed on the Tehran Stock Exchange (980 firm-year) during the years 2015 to 2021 has been selected. Combined data analysis and generalized least squares regression were used to test the research hypotheses.The results show that excess cash has a direct and significant relationship with conservatism. Also, the results show the moderating effect of funds paid to Equityholders on the positive relationship between excess cash and conservatism. In other words, the direct effect of excess cash on conservatism in companies that pay more cash to Equityholders is less compared to other companies. But the findings do not confirm the variable role of funds paid to debtholders on the relationship between excess cash and conservatism.