Value Relevance of Conditional Conservatism and the Role of Disclosure: Empirical Evidence from Iran

Abstract

This study examines the effect of conditional conservatism on value relevance of accounting variables. This study shows that conservatism decreases value relevance of earnings. More importantly, the evidence, indicate that the strength of the relation is conditional upon the firm’s disclosure, being the strongest for firms with high disclosure level and the weakest for firms with low disclosure level. In order to measure the conditional conservatism, C-Score from Khan and Watts have been used. Also measurement of disclosure quality has been done by TSE corporate disclosure scores. Based on a sample of Iran listed entities, between 2004 and 2011, this study posits conservative procedure mapping into reduced value relevance and this manner being the strongest for the firms with high conservatism and low disclosure.