The Effect of Product Market Competition on Conditional and Unconditional Conservative Accounting Procedures

Document Type : Original Article


1 Department of Accounting

2 Department of Economics and Administrative Sciences, Imam Reza International University of Mashhad, Mashhad, Iran



Through a cross-sectional analysis, this paper explores the influence of Product Market Competition (PMC) structure on conditional and unconditional accounting conservatism. The study utilizes financial data from the Tehran Stock Exchange from 2012 to 2019. Conditional and unconditional conservatism are measured using Basu's (1997) and Beaver and Ryan's (2000) models, respectively. Additionally, the Herfindahl–Hirschman index (HHI) is employed to introduce exogenous variations in PMC, allowing an assessment of how increased competition in market valuation impacts accounting conservatism in manufacturing companies. Despite previous findings by Dhaliwal et al. (2014) suggesting a positive association between intense PMC and conditional conservatism, the results of this study demonstrate that PMC does not affect the implementation of conditional conservatism. Furthermore, this investigation reveals that PMC has no bearing on applying unconditional conservatism in financial reporting. This aligns with the theory of unconditional conservatism, indicating that companies employ it based on their financial policies. The outcomes of this research contribute to the existing literature on conservatism.


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