tp://html.scirp.org/file/_1-2670085_5.htm" target="_blank">

Table 5. Results of the tests.

Source: calculations of study.

Table 6. Results for the first hypothesis.

Source: calculations of the study.

Table 7. Results of the tests.

Source: calculations of study.

Table 8. Results for the second hypothesis.

Source: calculations of the study.

and control variables. The value of Durbin-Watson test is equal to 2.01. As this value ranges from 1.5 to 2.5, the significance or differences between actual values and the values predicted by the regression model are independent. Obviously, the significance level of f-value (0.000) is <0.05; thus, the regression is valid.

4. Conclusion

This study examines the relationship between accounting conservatism and market-to-book ratio and Tobin’s Q. The quarterly data was tested for 2008 to 2014 at a significance level of 5%. Basu (1997) model was used to measure conditional conservatism. To evaluate the effect of market-to-book ratio and Tobin’s Q on conditional conservatism, these variables were added to Basu’s model. According to results of the first hypothesis, there is a significant relationship between accounting conservatism and Tobin’s Q at 95% confidence; thus, the increase in conservatism decreases Tobin’s Q and vice versa. Therefore, the hypothesis is confirmed. According to results of the second hypothesis, there is no relationship between accounting conservatism and market-to-book ratio; thus, the hypothesis is rejected. Hemati and Samadi-Largani (2010) indicate a significant relationship between market-to-book ratio and conservative accruals as well as market-to-book ratio and conservative cash, which is inconsistent with results of the present study [10] . Ball and Kothari (2007) used an econometric model to validate Basu’s model in measuring conservatism. They showed that Basu’s model was unbiased assuming the asymmetric timeliness of earnings [11] . They also used econometric methods to describe analyses of Roychowdhury and Watts (2007) and asserted that the expected negative relationship between market-to-book ratio (MB) and asymmetric timeliness of earnings in measuring conservatism was due to the reflection of changes in market expectations on unidentified growth opportunities in earnings. Econometrically, their analysis well explained the asymmetric timeliness of earnings.

Cite this paper

Abdolkarim Moghadam,Mehran Rahimi, (2016) The Study of the Relationship of Conditional Conservatism for the Market-to-Book Ratio and Tobin’s Q. Open Journal of Accounting,05,19-24. doi: 10.4236/ojacct.2016.53003

References

  1. 1. Watts, R.L. (2003) Conservatism in Accounting Part I: Explanations and Implications. Accounting Horizons, 17, 207- 221. http://dx.doi.org/10.2308/acch.2003.17.3.207

  2. 2. Basu, S. (1997) The Conservatism Principle and the Asymmetric Timelines of Earnings. Journal of Accounting and Economics, 24, 3-37. http://dx.doi.org/10.1016/S0165-4101(97)00014-1

  3. 3. Darrough, M.N. and Stoughton, N.M. (1990) Financial Disclosure Policy in an Entry Game. Journal of Accounting and Economics, 12, 219-243. http://dx.doi.org/10.1016/0165-4101(90)90048-9

  4. 4. Clinch, G. and Verrecchia, R.E. (1997) Competitive Disadvantage and Discretionary Disclosure in Industries. Australian Journal of Management, 22, 125-137.
    http://dx.doi.org/10.1177/031289629702200201

  5. 5. Gharabaghian, M. (1993) Economy and Trades. RASA, Tehran.

  6. 6. McNichols, M.F., Rajan, M.V. and Reichelstein, S.J. (2014) Conservatism Correction for the Market-to-Book Ratio and Tobin’s q. CESifo Working Paper No. 4626 Category 11: Industrial Organization.

  7. 7. Mehrani, K., Vafisani, J. and Halaj, M. (2009) The Relationship between Debt Contracts and Firm Size and Conservatism in Companies Listed in TSE. Accounting and Auditing Studies, 17, 97-112.

  8. 8. Badvarnahandi, Y. (2011) The Relationship between Some Mechanisms of Corporate Governance and Conservatism in Financial Reporting. Accounting Studies.

  9. 9. Roychowdhury, S. and Watts, R.L. (2007) Asymmetric Timeliness of Earnings, Market-to-Book and Conservatism in Financial Reporting. Journal of Accounting and Economics, 44, 2-31.
    http://dx.doi.org/10.1016/j.jacceco.2006.12.003

  10. 10. Hemati and Samadi-Largani (2010) The Effect of Market to Book Ratio and Conservative Accruals for the Market to Book Ratio Earnings Conservatism Cash Item.

  11. 11. Ball, R., Kothari, S.P. and Nikolaev, V.V. (2013) Econometrics of the Basu Asymmetric Timeliness Coefficient and Accounting Conservatism. http://www.ssrn.com

Journal Menu>>