Accounting and Auditing Research

Accounting and Auditing Research

Managerial Reaction to Ambiguity: Analyzing the Relationship between Conservative Financial Reporting and Managerial Caution in Investment Process under Economic Growth Conditions

Document Type : Original Article

Author
Mohammad Hassani
Assistant prof., Department of Accounting & Auditing, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran
10.22034/iaar.2024.206113
Abstract
Objective: This paper discusses the relationship between conservatism in financial reporting and managerial caution in investment process under economic growth conditions.
Methods: Unconditional accounting conservatism is measured using the model proposed by Givoly & Hayn (2000) and managerial caution is measured using the pattern proposed by Hsihe et al (2012). The research sample includes 204 firms listed in Tehran Stock Exchange over the period March 2012 to March 2019.
Results: Research findings show that the relationship between accounting conservatism and managerial caution is significant and negative. In addition, the relationship between accounting conservatism and economic boom conditions is significant and negative. Also, the relationship between accounting conservatism and managerial caution is affected by economic conditions.
Conclusion: According to findings, managerial caution and accounting conservatism in financial reporting especially under the economic boom conditions are substitute solutions in response to ambiguity; Managerial caution in investment process is low (high) in conservative (aggressive) firms.
Keywords
Ambiguity
Conservatism
Managerial Caution
Economic Condition
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Accounting and Auditing Research
Volume 16, Issue 62
Summer 2024
Pages 83-108