Investigating the Relationship Between Product Market Competition and Unconditional Accounting Conservatism (Case Study: Companies listed on Tehran Stock Exchange)

The purpose of this paper is investigating the relationship between product market competition and unconditional accounting conservatism of the companies listed on Tehran Stock Exchange. In this respect, the effect of firms’ size and financial leverage were controlled. Also, Herfindahl – Hirschman, Lerner and modified Lerner indexes used as a measure of product market competition. Statistical society of present study consists of 67 companies listed on Tehran Stock Exchange during 2004 to 2011. Multivariate linear regression analysis was used to test the research hypotheses. The results of research hypotheses test indicate that generally there is a significant relationship between indicators of product market competition and the ratio of total accruals before depreciation divided by average total assets and the ratio of book value divided by market value of firms’ net assets as criterion of unconditional accounting conservatism. This means that by increasing competition in every industry, companies apply conservatism in financial reporting in the presence of competitive pressures and reduce profit independent of current economic news.