The Impact of Accounting Conservatism on Investment Sensitivity to Cash Flow in Companies Listed on the Tehran Stock Exchange
Keywords:
Accounting Conservatism, Investment Sensitivity to Cash Flow, Tehran Stock ExchangeAbstract
Objective: This study aims to determine whether accounting conservatism affects investment sensitivity to cash flow among companies listed on the Tehran Stock Exchange.
Methodology: The research employed an applied, causal–correlational design using panel data from 119 firms over a six-year period. A systematic elimination method was used to select the sample. Investment sensitivity was modeled through panel regression with cash flow as the main predictor, while accounting conservatism and several control variables—Tobin’s Q, firm size, and leverage—were included. Analyses were performed using EGLS estimation along with diagnostic tests to ensure model validity and statistical assumptions.
Findings: The results revealed that cash flow has a positive and significant influence on investment sensitivity (β = 0.0341). Accounting conservatism showed no significant effect on investment sensitivity, and its interaction with cash flow was also insignificant. Tobin’s Q and leverage exhibited significant positive effects, while firm size demonstrated a positive but nonsignificant relationship. The adjusted R² value of 0.58 and a Durbin–Watson statistic of 1.97 confirmed appropriate model fit and the absence of autocorrelation.
Conclusion: The findings indicate that accounting conservatism does not meaningfully alter the sensitivity of investment to cash flow. Investment behavior in the examined firms appears to be shaped more by cash flow conditions, growth opportunities, and capital structure than by the degree of conservative financial reporting.
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