The Effect of Unconditional Accounting Conservatism on non-profitability in An Emerging Market: Case of Iran

The present study is intended to examine the effect of accounting conservatism on firms’ non-profitability in Tehran Stock Exchange in 48 unprofitable firms and 57 profitable firms over a period of seven years from 2001 to 2007. This study was conducted according to Givoly and Hayn model to measure accounting conservatism index in non-profitable and profitable) firms. Data analysis performed with logistic regression. The  results of study showed that there is significant and direct relationship between unprofitability and accounting conservatism. It was also concluded that, unprofitability is positively correlated with financial leverage, and is negatively correlated with firm size and profitability index. In addition, the results of the study showed that there was not any significant relationship between sales growth and non-profitability; moreover there is a direct relationship between financial leverage and non-effectiveness of sales growth in non-profitable firms. The results showed that accounting conservatism is an effective mechanism to limit the bias behavior of managers in overstatement of earnings in non-profitable firms and it consequently increase the firm value of  non-profitable firms in long term.