Investigating The Impact of Accounting Conservatism on Residual Income and Abnormal Earnings in Tehran Stock Exchange Listed Companies

One of the important factors contained in the financial statements is the accounting earnings which often financial analysts use on valuation models and firms performance assessment. On the other hand, since earnings measure requires estimates, as well as multiple methods of accounting, the accounting earnings report can be affected by company's conservatism. In this study, we answered the following question: Does accounting conservatism have impact on residual income and abnormal earnings? accounting conservatism is an explanatory variable and residual income and abnormal earnings are the dependent variables. Dividend, Capital expenditures, Financial Leverage and Firm Size acted as control variables. Data was gathered between 2003 and 2013. The number of observations was 678. The results showed that accounting conservatism has a significant negative effect on residual income. Also, accounting conservatism demonstrated a significant negative impact on abnormal earnings.