The Effect of Conditional and Unconditional Conservatism on the Level of Future Investment and Stock Value

Investment is known to be as one of the most important ways to expand the scope of companies’ operations and prevent them from being recessed and falling into downturn.  If the level of company’s investments is proportional to financial and operational policies, it would create value for the company and increase the stock value of the company.One of the factors affecting these two parameters, that are the level of investment and the stock value, is the conservatism principle. Therefore, this research is aimed to study the effect of conditional and unconditional conservatism on the level of future investment and stock value.In this regard, the financial data of 129 companies for a nine years period from March 20th 2008 till March 20th 2017 was used as combined data. To analyze the data, multivariate regression was used. Research findings suggest that business entities who implement a high level of conditional conservatism, do a lower level of investment. While business entities who implement a high level of unconditional conservatism have a higher level of investment. Another finding of the research suggests that the conditional and unconditional level of conservatism amplify the impact of the company's investment on stock value. The results of this research can be explained in the view of conservative contract theory and the theory of information asymmetry.