Applied Research in Financial Reporting

Applied Research in Financial Reporting

An Investigation on the Effect of Conditional and Unconditional Conservatism of Accounting and Auditing Information on Future Stock Prices Crash Risk: New Evidence from Tehran Stock Exchange

Document Type : Original Article

Authors
Samin Kohansal
Shoaib Rostami
Sina Kheradyar
Arash Yaghoubi
Abstract
The aim of this paper is to investigate the effect of Conditional and Unconditional Conservatism of Accounting and Auditing Information on Future Stock Prices Crash Risk from 2008 to 2012. Hence a sample of 86 firms for a five year period is collected. In this research we initially examine the effect of previous period’s stock price crash risk on stock price crash risk of future period. Then the effect of unconditional conservatism on the future stock price crash risk is studied. Thereinafter we examined the effect of high unconditional conservatism in reducing the need for conditional conservatism on future stock price crash risk. At the end we examined the effect of auditing attributes on future stock price crash risk. In order to examine research hypothesis a multiple regression with ordinary least squares (OLS) method is employed. Our initial findings indicate that high stock price crash risk in previous periods leads to lower crash risk in the future period. Besides the results of testing the first hypothesis showed that there is no negative significant relationship between unconditional conservatism and future stock price crash risk. However our results for second hypothesis indicate that high level of unconditional conservatism reduces the need for conditional conservatism in decreasing future stock price crash risk. While the results of examining the last hypothesis showed that the auditing attributes do not seem to have predictive ability for future stock price crash risk.
Keywords
Conditional Conservatism
Unconditional Conservatism
Future Stock Price Crash Risk

  • Receive Date 08 February 2015
  • Revise Date 27 September 2017
  • Accept Date 29 July 2015