Modeling the Impact of Accounting Conservatism on Information Behaviour in Equity Valuation Based on PLS-SEM

Mohammad Amri-Asrami; Mohammad-Ali Aghaei

doi:10.31436/ijema.v31i2.1056

Authors

Mohammad Amri-Asrami Semnan University, Iran
Mohammad-Ali Aghaei Tarbiat Modares University, Iran

DOI:

https://doi.org/10.31436/ijema.v31i2.1056

Keywords:

Accounting information dynamics, Accounting conservatism, Equity valuation, PLS-SEM, Formative approach

Abstract

Based on residual income valuation models, this study used PLS-SEM with a formative approach to investigate the moderating effects of conservative policies on the relation between accounting information of the current and lagged periods with the equity value of companies listed on the Tehran Stock Exchange. The sample consisted of 149 companies from 2012 to 2019. The moderating effect of conditional / unconditional accounting conservatism on the relation between current/lagged accounting information and equity value is insignificant at the 10% level. In contrast, conditional conservatism has a significant relation with current/lagged accounting information, current/lagged market information, and equity values. Unconditional conservatism has significant relation with current/lagged accounting information, lagged market information, and equity values. Unconditional conservatism, however, has no significant relation with the current market information. Referring to Ohlson's vision (1995) on the expected long-term convergence between book value and market equity value, this paper's findings show that the current/lagged book value constitutes the structure of linear dynamics used in the residual income valuation model; therefore, the dynamics in residual income evolve on the dynamics of book value and market equity value.

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