Examining the effect of conservatism on value relevance of extreme and non-extreme earnings

Value relevance is one of the most important areas of focus in accounting, and due to the recent studies accounting measures’ value relevance alleviate by the passage of time. One of factors that these studies relate to this event is conservatism. In other words, recent studies show that conservatism will drop value relevance of earnings and other measures in accounting. In the other side, an important characteristic of earnings is non-linear behavior of this measure. Therefore, examining the effect of conservatism on value relevance of earnings with this characteristic in mind, is disregarded in the literature. In this research, this area will be covered. The Khan & watts measure is used for operating conservatism and Easton & Harris model is take to account the value relevance. The results of this research show that conservatism with no respect to extreme and non-extreme earnings has no relation to value relevance of earnings.