Investigating the Relationship between Accounting Conservatism and the Bankruptcy Risk of Companies

The objective of the present study is to investigate the relationship of accounting conservatism with the bankruptcy risk and the reduction of profitability of companies. Bankruptcy risk indices of the decrease in net profit, and the decrease in dividend per share(DPS) were used as the dependent variables and the index of accounting conservatism was used as the independent variable. To test the research hypotheses and investigate the relationship between conservatism and the dependent variables, the data of 68companies listed on the Tehran Stock Exchange as the sample size were used. The temporal scope of the study was from 2005 to 2010. The data were analyzed by the method of panel data analysis. To evaluate the appropriate models for testing hypotheses in the panel data, Hausman and Chow tests were used. The results of the research indicated that accounting conservatism has a negative significant correlation with bankruptcy risk and a positive significant correlation with profitability indices.

accounting conservatism, bankruptcy risk, net profit, DPS