Investigating The Effect of Real Activity Management on Conditional Conservatism`

M. Karimifard; M. Shirazi; M. Khan–mohammadi

Volume : III, Issue : X, October - 2014

Investigating The Effect of Real Activity Management on Conditional Conservatism`

M. Karimifard, M. Shirazi, M. Khan Mohammadi

Abstract :

The purpose of this study is to investigate the effect of real activity management (selling, production and discretionary expenditure related activities) on the level of conditional conservatism. The information from 303 listed companies in Tehran Stock Exchange for the period of 2001 to 2011 are selected in this study model estimation and research hypotheses testing. Regression analysis was used to test the research hypotheses. Roychowdhury (2006) model is used in order to estimate the normal level of operating cash flows and abnormal production costs as well as the abnormal discretionary expenditures. Conservatism measurement has been performed using Basu (1997) model. The research hypotheses was investigated using Paternoster et al (1998) test. The research findings shows that companies attempt to reduce the level of conditional conservatism by applying real earning management through managing the production activities and managing the activities related to discretionary expenditures.