Abstract
Purpose The purpose of this paper is to examine the impact of debt maturity structure and types of institutional ownership on accounting conservatism by using different financial variables and proxies. Design/methodology/approach Employing panel data analysis in the R programming language, the authors test their hypotheses on a sample of 143 (858 firm-year observations) companies listed on the Tehran Stock Exchange during 2011–2016. Findings Using Basu (1997) and Beaver and Ryan (2000) models as proxies for accounting conservatism, the findings suggest a non-significant relationship between accounting conservatism and debt maturity structure. Contrary to the primary expectation, the results indicate that short-maturity debts are also non-significantly and negatively associated with accounting conservatism in financially distressed firms. Finally, using both conservatism measures, the authors document that there is no significant relationship between both active and passive institutional ownership and accounting conservatism as well as debt maturity structure. Originality/value The current study is the first study conducted in a developing country like Iran, and the outcomes of the study may be helpful to other developing nations.
Highlights
One of the most important financial issues in today’s growing capital markets is the quality of firms’ financial information
It is of considerable importance for managers to maintain a proper level of conservatism when providing required financial information for interested investors, primarily due to the fact that future losses stemming from too optimistic estimates are much more serious than losing profitable opportunities arising from adopting too pessimistic valuation approaches
Using a sample of 143 (858 firm-year observations) companies listed on the Tehran Stock Exchange (TSE) during 2009–2014, our findings, contrary to the results of prior literature, suggest that there is no significant relationship between debt maturity structure and the demand for conservative financial reports
Summary
One of the most important financial issues in today’s growing capital markets is the quality of firms’ financial information. Higher quality financial information leads to sound financial decisions made by potential investors and contributes to more appropriate allocation of financial resources. In this respect, it is of considerable importance for managers to maintain a proper level of conservatism when providing required financial information for interested investors, primarily due to the fact that future losses stemming from too optimistic estimates are much more serious than losing profitable opportunities arising from adopting too pessimistic valuation approaches. Creditors do not earn any additional return from their investment when the value of a firm’s net total assets is more than the nominal value of its debts, regardless of the amount of the overvaluation
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