Conservatism

Markets such as Money Market, Labor market, Commodity market along with Capital market are committed to optimal allocation of capital and financial resources. One of the most important sources of information is financial reports. Investors base their decisions on the balance between risk and return and are interested in estimating their expected future returns and investments using information reported by the company and other evidence. The purpose of this study is to investigate the relationship between accounting conservatism and cost of equity capital and evaluate the economic results of accounting conservatism through information perspective. Therefore, in order to achieve the main objective of the research, first the reports and documentation of past performance of the sample member companies have been studied and the required data have been collected. The research hypotheses were then evaluated which consisted of one main hypothesis and two sub-hypotheses, indicating that there is a negative and relatively strong relationship between conserv-atism and capital cost. Differentiating between several aspects of accounting con-servatism and examining the relationship among each aspect and cost of equity capital are new innovation of the present study. .

The purpose of this paper is to focus on examining the impact of conservatism on IPOs underpricing and then examine the role of audit quality as a moderating variable in the relationship between conservatism and IPOs. Based on financial-behavioral theories, analyses are conducted of data from a sample of Tehran Stock Exchange (TSE) listed companies for the fiscal years 2008–2017 (i.e. 230 firm-year observations). Correlation and regression analyses are performed to evaluate possible associations between conservatism and initial public offerings (IPOs) underpricing with regard to audit quality. There is a negative significant relationship between conservatism and IPOs underpricing, i.e., it reduces IPOs underpricing. Also, the research results indicated that the auditing quality cannot moderate the relationship between conservatism and IPOs underpricing in Iran’s stock market. This conclusion may be explained under the winner’s curse theory. Accordingly, informed investors do not request to purchase unattractive stocks, and uninformed investors demand and obtain all the unattractive stocks since there is no competition between informed and uninformed investors. A limitation of this paper is the number of firms, which for future studies needs to be considered. This research is expected to contribute comprehensively to expanding the theoretical foundations and increase audience knowledge of the underpricing of initial public offerings (IPOs). It is also expected that the results of the study will: 1. determine the underpricing of IPOs in Iran during the research period; 2. document the role of conservatism in reducing underpricing of IPOs; 3. potentially prevent inappropriate pricing of new stocks. Furthermore, the findings of this study suggest that the application of financial-behavioral theories calls for more inquiry.