The Relationship of Accounting Conservatism with Market Responsess and firms Value

Accounting conservatism, leading to increases in demand for stock buying in companies with higher level of conservatism, is profitable for capital market participants, particularly shareholders. Increases in demand may lead to an increase in share prices in its own right which will inevitably trigger market reaction and boost company value. This paper investigates the relationship between accounting conservatism, market reaction and value of the companies accepted at stock exchange. Ball and Shivakumar (2005) model and Givoly and Hayn model (2000) were adopted in order to measure the degree of conditional and unconditional conservatism, respectively. The statistical population consists of 68 companies accepted at Tehran stock exchange, during the period of 5 years (1387-1392), which are selected by using systematic elimination procedure. Simple linear regression was used to test research hypothesis. The results indicated a relationship between market reaction and company value. In addition, return on assets, from among control variables in regression, had a positive relation with market reaction. A positive and meaningful relation was indicated between return on assets, book-to-market ratio, liquidity ratio and company value.