Conservatism In Tehran Stock Exchange Finance Essay

The purpose of this survey is to look into the relationship between accounting conservativism and dividend policy in Tehran Stock Exchange. To make so, a sample of 90 houses is selected to be studied during the period of 2004 to 2011. Basu ( 1997 ) theoretical account is extended for mensurating accounting conservativism. The consequences show the there is non important relationship between accounting dividend policy and conservativism in TSE.

Cardinal words: accounting conservativism, dividend policy and Tehran Stock Exchange

1. Introduction

Accounting conservativism has been long a topic of examination by both standard compositors and accounting research workers. Recently more arguments have been on accounting conservativism as a consequence of standard compositor ‘s determination to exclude it from conceptual model. Some argues that accounting conservativism has information content while others believe that it does non profit for shareholders ( Shorevarzi et al. , 2009 ) .

Accounting conservativism is traditionally defined by the proverb “ anticipate no net income, but anticipate all losingss ” ( Watts, 2003 ) . Givoly and Hayn ( 2000 ) define accounting conservativism as “ the pick of an accounting attack that in uncertainnesss leads to acknowledge the least assets and gross and have the lowest positive impact on equity ” . Harmonizing to Basu ( 1997 ) , accounting conservativism is “ asymmetric seasonableness of loss and additions acknowledgment ” . Gao ( 2011 ) defines conservativism as “ more supportive grounds for good intelligence than bad intelligence ” . However, directors face many inducements that affect their inclination for good or bad intelligence acknowledgment. They may acknowledge bad intelligence seasonably for revenue enhancement intent and salvaging their repute or detain it for avoiding recognition rate decrease which increases their cost of capital ( Zhen Qi, 2011 ) .

On the other manus, dividend policy is one of the most of import countries in finance literature. Dividends can play a utile function in the universe of important bureau jobs between corporate insiders and foreigners. Insiders return corporate net incomes to investors by paying dividends and hence are no longer capable of utilizing these net incomes to profit themselves. Payment of dividends makes companies to necessitate capital assemblage, and therefore gives outside investors an chance to exert some control over the insiders at that clip ( Easterbrook, 1984 ) . In this respect, Booth and Chang ( 2011 ) find that since the mid-1980s the difference in information dissymmetry between dividend- and non-dividend-paying houses has increased aggressively, before the mid-1980s the market did non distinguish strongly between them, but later the market has reacted less negatively to proclamations by dividend remunerators.

The linkage between accounting conservativism and dividend policy is of import because both can be served as a tool for cut downing bureau cost. More conservativism is expected to cut down bureau cost while cut down gaining direction. In add-on, more payout policy can besides cut down bureau cost through decrease of renounces under control of troughs. Directors may non hold a willing to administer hard currency to keep their control in house which in bend may do that they use these resources to put in unfavourable investings. In add-on, expecting all hereafter losingss cause the decrease of income and accordingly reduces dividend payout ( Watts, 1993 ) .

However, it is expected that more dividend payout consequences in more conservativism in instance they serve as a tool to cut down bureau cost. The chief purpose of the survey is to look into this relationship.

2. LITRATURE REVIWE

Mashayekhi et Al. ( 2009 ) investigated the relationship between conservativism and dividend degree and net incomes doggedness. They found that increasing conservativism leads to diminishing dividend. Furthermore, they indicated that diminishing net incomes doggedness does non ensue in increasing conservativism. Ahmed et Al. ( 2002 ) investigated the function of accounting conservativism in extenuating bondholder-shareholder struggles over dividend policy and in cut downing debt costs. They find that houses confronting more terrible struggles over dividend policy tend to utilize more conservative accounting. Furthermore, they document that accounting conservativism is associated with a lower cost of debt after commanding for other determiners of houses ‘ debt costs. Frankel et Al. ( 2008 ) find that the asymmetric seasonableness of hard currency flows is significantly related to the asymmetric sensitiveness of stockholder payouts. On the footing of their other steps of conservativism ( net incomes lopsidedness and accumulated nonoperating accumulations ) they show that these steps are besides non significantly related to the sensitiveness of stockholder payouts given bad intelligence. Their consequences suggest that accounting policies do non significantly restrain stockholder distributions conditional on intelligence that does non impact hard currency flows. Dewenter and Warther ( 1998 ) find that information asymmetries or bureau struggles affect dividend policy. Li and Zhao ( 2008 ) find that houses that are more capable to information dissymmetry are less likely to pay, originate, or increase dividends, and disburse smaller sums. Iyengar and Zampelli ( 2010 ) investigated whether or non there is a nexus between conservative accounting patterns and the sensitiveness of executive wage to accounting public presentation. They find that the sensitiveness of executive wage to accounting public presentation is higher for houses that report conservative accounting net incomes.

3. HYPOTHESES DEVELOPMENT

H1.There is a relationship between accounting dividend payout and conservativism in houses listed in TSE.

To look into above hypothesis in item, we break accounting conservativism into seasonableness of bad intelligence acknowledgment and seasonableness of good intelligence acknowledgment.

It is expected that acknowledgment of bad intelligence in a steadfast affects dividend payout. Firms confronting bad conditions in concern have less inclination to administer dividend and frailty versa. However, following hypothesis is posited:

H1a. The seasonableness of bad intelligence acknowledgment is negatively related to dividend payout.

In add-on, it is expected that acknowledgment of good intelligence in a steadfast affects dividend payout. Firms confronting bad conditions in concern have more inclination to administer dividend and frailty versa. However, following hypothesis is posited:

H1b. The seasonableness of good intelligence acknowledgment is positively related to dividend payout.

4. METHODOLOGY AND DATA COLLECTION

Present survey is applied research sing categorization based on end. The purpose of the applied research is to develop using cognition in the given topic. In add-on, since the survey tries to happen a relationship between dividend payout and accounting conservativism, the method of survey is empirical correlativity. The purpose of this kind of survey is to find the relationship between the research variables. Using arrested development and Pierson correlation the relationship between dividend payout and accounting conservativism is investigated. To make so, foremost Basu ( 1997 ) is extended to include dividend. After proving first hypothesis utilizing theoretical account 1, research sample is separated into two groups viz. the houses with negative return to capture asymmetric seasonableness of bad intelligence and the houses with positive return to capture asymmetric seasonableness of bad intelligence.

The population of the survey includes wholly listed houses in TSE. However, to hold a sensible homogeneous population, the undermentioned conditions are considered in informations assemblage:

1. Information must be available for the past 8 old ages.

2. Fiscal twelvemonth must be ended at the terminal of twelvemonth.

3. Transaction intervals must non be more than 3 month.

4. Datas must be available for proving hypotheses.

5. Sample houses must non be investing, bank or funding house.

As a consequence of these conditions a sample of 70 houses was obtained and studied during the period between 2004-2012. Literature and conceptual model were gathered by documentary method. Fiscal statement and notes issued by TSE were used as a research tool. In add-on, Rahavarde Novin package was applied to pull out the research informations.

Models and variables definition

To prove the chief hypothesis, following Zhen Qi ( 2011 ) methodological analysis Basu ( 1997 ) theoretical account is extend to capture dividend policy consequence on conservativism as followers:

( 1 )

Where:

EARN is houses ‘ net income before extraordinary points, RET is one-year buy-and-hold returns, D is an index variable equal to 1 if returns ( RET ) are negative, and 0 if returns are positive, DIV is houses dividend policy captured by spliting hard currency dividend by net income. The coefficient of the tripartite interaction between DIV, returns, and the negative return silent person captures the difference in the grade of asymmetric seasonableness of net incomes between high dividend remunerators houses and low dividend remunerators houses. We predict that the coefficient of the interaction between RET, D, and DIV ( I±7 ) is negative and important, bespeaking that high dividend remunerators houses report net incomes in a less conservative mode.

First and 2nd sub-hypotheses are tested through following arrested development for bad intelligence and good intelligence individually.

( 2 )

Where all variables are defined as old theoretical account, negative and important interaction between DIVA-RET proves sub-hypothesis 1, and positive and important interaction between DIVA-RET proves sub-hypothesis 2.

5. EMPRICAL Consequence

5.1. Descriptive statistic

Descriptive statistic merely reports an image of informations distribution of research and does non describe the relationships between variables. Research descriptive statistic is shown in Table 1.

Table 1. Descriptive statistic

DIV

Calciferol

EARN

RET

Mean

1.049526

0.354167

0.170649

34.03626

Median

0.670000

0.000000

0.149539

12.80000

Maximum

100.0000

1.000000

6.762778

820.1600

Minimum

9.432275

0.000000

-2.695823

-79.64000

Std. Dev.

4.197662

0.478592

0.363669

82.89660

Lopsidedness

19.38364

0.609850

9.517949

3.534478

Kurtosis

440.3771

1.371917

176.0665

23.83058

Coefficient of fluctuation

3.999579

1.351317

2.131094

2.435538

Notes: DIV is dividend, D is dummy variable, EARN is net income before extraordinary points, RET one-year buy-and-hold returns.

5.2. Correlation

Correlation between research variables is presented in Table 2.

Table 2. Correlation Matrix

DIV

Calciferol

EARN

RET

DIV

1.000000

Calciferol

0.013203

1.000000

EARN

-0.028274

-0.008812

1.000000

RET

-0.037736

-0.507693

-0.043648

1.000000

As it is shown in Table 2, the correlativity between variables is negative except for the relationship between dividend and silent person variable. The low correlativity between variables besides shows that there is non collineary job.

5.3. Hypothesiss test

H1.There is a relationship between dividend payout and accounting conservativism in TSE.

To prove this hypothesis theoretical account 1 regressed. The consequences of theoretical account arrested development are presented in Table 3.

Table 3. Arrested development of the relationship between conservativism and dividend payout

Variable

Coefficient

Std. Mistake

t-Statistic

Prob.

C

0.193784

0.020928

9.259409

0.0000

RET

-0.000277

0.000194

-1.430914

0.1529

Calciferol

-0.087339

0.036886

-2.367784

0.0182

RETD

0.001552

0.000255

6.078255

0.0000

DIV

-0.001661

0.004058

-0.409375

0.6824

DIVRET

-1.59E-05

7.94E-05

-0.200868

0.8409

DIVD

0.010483

0.020668

0.507205

0.6122

DIVRETD

0.000177

0.000294

0.601002

0.5480

R-squared

0.053801

Adjusted R-squared

0.044432

Durbin-Watson

2.140430

F-statistic

5.742835

Prob ( F-statistic )

0.000002

The consequences of hypothesis trial show that there is non important relationship between dividend policy and accounting conservativism. This consequence indicates that dividend policy of TSE houses does non impact on their conservativism. However, our hypothesis is rejected. The value of Durbin-Watson stat ( 2.14 ) shows that there is non auto-correlation job in theoretical accounts residuary.

H1a. The seasonableness of bad intelligence acknowledgment is negatively related to dividend payout.

To prove this hypothesis theoretical account 2 regressed for merely negative return sample. The consequences of theoretical account arrested development are presented in Table 4.

Table 4. Arrested development of seasonableness of bad intelligence acknowledgment and dividend payout

Variable

Coefficient

Std. Mistake

t-Statistic

Prob.

C

0.082625

0.057761

1.430449

0.1538

RET

-0.003748

0.001867

-2.008257

0.0457

DIV

0.006796

0.028555

0.237990

0.8121

DIVRET

0.000251

0.000413

0.609650

0.5426

R-squared

0.016612

Adjusted R-squared

0.004858

F-statistic

1.413342

Durbin-Watson stat

2.106888

Prob ( F-statistic )

0.239367

The consequences of hypothesis trial show that there is non important relationship between bad intelligence acknowledgment and dividend payout. However, the hypothesis is rejected. The value of Durbin-Watson stat ( 2.10 ) shows that there is non auto-correlation job in theoretical accounts residuary.

H1b. The seasonableness of good intelligence acknowledgment is positively related to dividend payout.

To prove this hypothesis theoretical account 2 regressed for merely positive return sample. The consequences of theoretical account arrested development are presented in Table 5.

Table 5. Arrested development of seasonableness of good intelligence acknowledgment and dividend payout

Variable

Coefficient

Std. Mistake

t-Statistic

Prob.

C

0.189575

0.015672

12.09624

0.0000

RET

-0.000210

0.000146

-1.436260

0.1516

DIV

-0.001440

0.003029

-0.475559

0.6346

DIVRET

-2.30E-05

5.93E-05

-0.387659

0.6984

R-squared

0.007079

Adjusted R-squared

0.000546

F-statistic

1.083629

Durbin-Watson stat 1.803134

Prob ( F-statistic )

0.355669

The consequences of hypothesis trial show that there is non important relationship between good intelligence acknowledgment and dividend payout. However, the hypothesis is rejected. The value of Durbin-Watson stat ( 1.80 ) shows that there is non auto-correlation job in theoretical accounts residuary.

6. DISCUSSION AND CONCLUSION

The purpose of this survey was to look into the relationship between accounting conservativism and dividend policy in Tehran Stock Exchange. To make so, a sample of 90 houses is selected to be studied during the period between 2004 to 2011. Basu ( 1997 ) theoretical account was extended for mensurating accounting conservativism. The consequences show the there is non important relationship between accounting dividend policy and conservativism in TSE. These consequences suggest that troughs of TSE houses do non utilize dividend and conservativism as a tool for decrease of bureau cost at the same clip. In add-on, the consequences in item show that non merely seasonableness of good intelligence does non impact dividend policy nor seasonableness of good intelligence does. This consequence may be from the fact that TSE houses smooth dividend payout irrespective good or bad intelligence. On the whole, in can be suggested from the consequences that inferred that TSE houses do non utilize dividend and conservativism as a tool for decrease of bureau cost at the same clip, to make so.