Investigate the Relationship between Systematic Risk with Accounting Conservatism in Firms of Chemical and Pharmaceutical Industries

Abstract

This study examined the relation between accounting conservatism and systematic risk. The idea is that in firms with higher systematic risk, managers have higher incentives to delay the recognition of bad news in the hope of future good news. The statistical sample consisted of 50 firms operating of chemical and pharmaceuticals in Tehran Stock Exchange. The test procedure which was analyzed using Eviews software is correlation analysis, and the relationship between dependent and independent variable is estimated using panel data. In this paper, for measuring systematic risk and accounting conservatism, we used Beta from CAPM model and Basu model. Consistent with hypothesis, we find a significant and negative association between systematic risk and accounting conservatism. Furthermore, examining the bad news and good news samples separately reveals that the effect of systematic risk on conservatism is likely to originate from delaying the recognition of bad news rather than accelerating the recognition of good news.