Examination the Effect of Product Market Competition on Conditional Conservatism

چکیده مقاله

The main purpose of this study is examination the effect of product market competition on conditional conservatism. Conditional conservatism interprets as resulting in earnings reflecting bad news more quickly than good news. This interpretation implies systematic differences between bad news and good news periods in the timeliness and persistence of earnings. In fact, it deals with an asymmetrical relationship between earnings and stock returns. Basu’s model (1997) is applied in order to measure conditional conservatism. Another aspect of this research deals with market competition, a notion that is based on splitting markets into two groups of competitive and monopoly. Product market competition is measured using the Herfindahl–Hirschman Index (HHI) as an inverse criteria which is focused on competition concentration in industries. The research sample includes 171 listed companies in Tehran Securities and Exchange over the period 2007- 2014. Multivariate regression model based on panel data is applied to test the main hypothesis. The results indicated that product market competition has positive and meaningful impact on conditional conservatism. In fact, those firms that active in more competitive industries, have higher levels of conditional conservatism. Also, evidences indicate that high competitive firms compared to low competitive firms, significantly apply higher levels of conditional conservatism.

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