Sensitivity of Accruals and its Components to the Operating Asymmetry caused by Sales Changes

Traditional discretionary accrual models such as modified Jones assumes a linear relationship between sales changes and accruals. Recent studies show that sales changes have an asymmetry effect on accruals; meaning that accruals and its components fall less for sales decreases than they rise for equal sales increases and this leads to an asymmetry. The aim of this research is to investigate the accruals and its components sensitivity on the operating asymmetry caused by sales changes and the effect of conditional conservatism on this relationship. This research is applied in terms of purpose and descriptive-correlation in nature. The research sample includes 180 companies listed on Tehran Stock Exchange that are selected through the systematic elimination method during the years 2008 to 2018. In order to test the hypotheses, panel data multiple regression model is applied. The results show that accrual components are less sensitive to sales decreases than to sales increases. Moreover, we can conclude that total accruals are more sensitive to sales decreases than to sales increases. After controlling for conditional conservatism, the results indicate that this sensitivity seems not to be affected by the conditional conservatism; and accruals and its components asymmetry are arising from the managers’ operating decisions.