Investigation on the role of conservative accounting in the reduction of company bankruptcy risk (evidence from Iranian capital market, based on Zawgin bankruptcy Model)

This research examines the existing relations between conservative accounting and bankruptcy risk, that conservative accounting causes increasing properties and cash and bankruptcy is as a condition in which there is not enough money or cash, so accounting theory indicates the existence of this relation between these two issues. In this research we used from classifications of the conditional and non conditional conservatism and Zavgin bankruptcy prediction Model. Which just shows a spectrum of probability of bankruptcy instead of just expressing two cases? To investigate the relationship we used regression model. Based on financial data of companies listed in Tehran Stock Exchange during the period of 2000 to 2009 (772 year/ firm of observation), the research results indicate there is significant relationship between conservatism and bankruptcy risk. In other words, the operations of firms include conservative accounting to reduce bankruptcy risk. The finding is consistent with other research and it could help both insiders and outsiders to decision making.