1 - Impact of Corporate Characteristics On The Qualitative Attributes of Accounting Earning

ijcrb.webs.
com
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
COPY RIGHT 2013 Institute of Interdisciplinary Business Research
410

JANUARY 2013
VOL 4, NO 9

IMPACT OF CORPORATE CHARACTERISTICS ON THE
QUALITATIVE ATTRIBUTES OF ACCOUNTING EARNING
MAHMOOD MOEINADDIN*
Assistant Professor
Department of Accounting, Yazd Branch, Islamic Azad University, Yazd, Iran.
*Corresponding Author
FATEME SHIRMARDI ROKN ABADI
M.A Student
Department of Accounting, Yazd Branch, Islamic Azad University, Yazd, Iran.
ABSTRACT
One the most fundamental changes in accounting that has been widely considered
by the users of financial data from the past to the present is the accounting earning,
while the qualitative attributes of profit including its conservatism and timeliness
have always been a matter of concern among researchers. The current study was
designed and conducted in order to examine the relationship between the qualitative
attributes of profit and the selected characteristics of corporations. The statistical
population of this study includes the entire non-financial companies registered in
the Tehran Stock Exchange and the considered sample consists of 90 corporations
that were selected through systematic deletion and the required data (from 2006 to
2010) were compiled and then analyzed using the single-variable and multi-variable
regression method based on panel data.
The results suggest that the conservatism of earnings has a direct relationship with
liquidity while it has a reverse relationship with the length of the cash conversion
cycle and the sustainable growth rate of earning. Also, timeliness of earning has a
reverse relationship with the length of cash conversion cycle while it is directly
relevant to liquidity and the sustainable growth rate of earnings.
Keywords: Profit conservatism, timeliness, qualitative attributes of earning, length
of conversion cycle, sustainable growth rate of earning, liquidity.
INTRODUCTION
Conservatism in accounting has long history. Theoretical concepts of financial
conservatism are considered one of the components of the quality feature of
reliability. Indeed, conservatism could be regarded as an output of obscurity and
whenever accountants face ambiguity, they apply conservatism. Conservatism
represents a less optimistic estimation. Adoption of reasonably economic decisions
and optimized allocation of restricted and scarce resources to the superior activities
without access to in-time, valid and reliable data is impossible (Bassou, 1997)
ijcrb.webs.com
411

JANUARY 2013
VOL 4, NO 9

Accounting earnings are conservative, in other words earning tend to reflect the bad
news (negative turnover of stocks) based on a timely basis than the good news
(positive turnover of stocks). Timeliness of fiscal reports is also another important
feature of accounting data. In other words, investors rely more on the new data
when making financial decisions since they believe that the outdated data have
already had their impact on the stock prices, thus the latter would not yield
earnings. Therefore, more quick access to accounting data would have a positive
effect on optimized decision-making while it also enhances the possibility of
earnings.
Bassou (1997) defines conservatism as the necessity to acquire a high degree of
approval in order to identify the good news such earning as opposed to the bad
news such as loss. This a definition of conservatism based on gain and loss.
Conservatism may be effective in improving the data provided by the management.
One of the main advantages that observation of conservatism would have for the
debtors is the reduction in interest rates of the loans they receive (Pae et al, 2005).
Timeliness is also another important feature of quality in financial data. Timeliness
means the data must become available to the users in the shortest time and via the
most rapid way possible. Timeliness of earning as a qualitative feature is based on
the idea that the accounting earning is a percentage of economic earning
measurement which is defined as alteration in stock market value (Francis, 2003).
Corporate characteristics (liquidity, length of cash conversion cycle and sustainable
growth rate of earning) each affect the qualitative attributes of earning
(conservatism and timeliness) in a different manner. Since the qualitative attributes
of earning are demanded by the users and the users themselves seek to gain
maximum earnings and achieve personal benefits, some corporate characteristics
affecting the qualitative attributes of earning would increase the profitability as well
as the user demand for these data, so that it is highly important to identify
inventories, receivable and payable accounts with regards to cash conversion cycle.
Identification of the optimized level of inventories, accounts payable and receivable
wherein maintenance and opportunity costs are minimized followed by recurrent
calculation of cash conversion cycle according to these amounts would lead to an
accurate and comprehensive insight into the efficiency of managing cash flows.
Moreover, managers may enhance the profitability and operational cash flows of
their firms through reduction of both cash conversion cycle and collection period of
accounts receivable, thus stimulating timely provision of data (Haitham, 2010).
All corporations are trying to achieve the maximum favorable value in earning and
are seeking solutions to increase earning. The main purpose of company is to
ijcrb.webs.com
412

JANUARY 2013
VOL 4, NO 9

increase the assets of stockholders. Taking a brief look at the main goals of the
company, we realize that the study of corporate characteristics and they respective
effects on accounting earning is of major significance whereby managers may make
an attempt to fulfill their objectives through improvement of favorable value in
qualitative attributes of earning. The aforesaid attributes play vital roles in success
or failure of company in future markets and since the combination of timeliness and
conservatism represents clarity of earning, then it is a qualitative feature demanded
by users (Bassou, 1997).
Since less research has been devoted to effect of corporate characteristics on the
combination of timeliness and conservatism, this study exerts to examine corporate
characteristics on these two variables.

Background of the study
Bassou et al (2001) studied the relationship between auditing conservatism and the
earnings in quarter intervals during the years 1988-1991 and 1992-1998 in France.
Their findings indicated that the legal commitments of auditors caused the earning
in the fourth quarter was more conservative than the previous one and that the
impact of bad news on the fourth quarter earnings was more in-time than the
previous quarter.
Francis et al (2003) studied the effects of the seven qualitative attributes of earning
including the accrual quality, persistence, predictability, smoothness, value
relevance, timeliness and conservatism on cost of equity capital. Their findings
showed that firms with the least favorable values of each attribute, considered
individually, generally experience larger costs of equity than firms with the most
favorable values.
Uday and Waslea (2004) studied the earning conservatism in technology sector of
England and came up with this conclusion that corporations with more progressive
technologies prefer the more conservative accounting rules for their costs rather
than risking the stockholders.
Wendy et al (2004) took on the study of relationship between accounting quality,
earning timeliness, earning conservatism and composition of board members in
corporations during 1999-2003 in U.S. Their findings indicated that corporations
with higher ratios of external board members are more in-time in identification of
bad news effects on earning and that they are not conservative with regards to good
news.
ijcrb.webs.com
413

JANUARY 2013
VOL 4, NO 9

Ball & Shivakumar (2005) investigated the earning quality in stock and non-stock
corporations during 1989-1999 in U.S. The found out that the non-stock
corporations have lower quality earnings than the stock ones due to the less demand
for financial reports.
Yuan et al (2006) studied the changing trends of timeliness and conservatism as the
two attributes of net earning while they also examined the influence of two factors
of corporation size and accounting institute size on these two attributes. They found
out that the net earnings of corporations is generally conservative though it has not
become more timelier and conservative. The two factors of corporation size and
accounting institute size had no effect on the two attributes of net earnings.
Dogan et al (2007) studied the timeliness of financial reporting during 1995-1998.
The findings showed that the timeliness of financial reporting is affected by the
profitability of corporation. And that the corporation size, high financial risk and
schedule related to timely reporting in previous years have been influential in
timely financial reporting of corporations.
Haitham (2010) studied the relationship between cash conversion cycle and
corporation profitability in a research conducted during 1990-2004. His findings
showed that: the shorter the length of cash conversion cycle is, the more increased
the profitability of corporation will be.
Lee et al (2010) studied the role of conservatism in financial decisions made by
corporations during 1996-2007. They found out that if conservatism occurs under
the supervision of capital investors, there would be more tendencies toward increase
in capital and that conservative corporations have less flexibility in management of
their liquidity.
Wendy et al. (2012) studied the relationship between corporate governance and
timeliness during 2003-2008 in Australia. They realized that if data are reflected in
a timelier manner, it would lead to more clarity in data and corporate governance
would be improved.

Research Methodology
The methodology applied in current study is applicable in terms of purpose,
descriptive in terms of practical strategy and correlative in terms of study of
variables relationships and the researcher attempts to determine the dispersion,
distribution and mutual relations among the variables. Single-variable and multi-
ijcrb.webs.com
414

JANUARY 2013
VOL 4, NO 9

variable regression based on panel data were used to analyze data in this study. This
research covers a period between 2006 and 2010. The data for current study were
extracted from the website of Tehran Stock Exchange as well as Rahavard Novin
software. The analysis and processing of collected data were carried out via Excel
and Eviews, while taking into account the type of hypotheses in question, data panel
and statistical tests as well as Chow test were used in order to apply data panel or
Pulin model simulation, and also the Hausman test was conducted to study the
constant and random effects. Moreover, variance heterogeneity test was applied to
study the research hypotheses.
Research Hypotheses
- Main Hypothesis
There is a significant relationship between corporate characteristics and quality
attributes of accounting earning.
- Secondary hypotheses
1- There is a significant relationship between sustainable growth rate and corporate
conservatism
2- There is a significant relationship between corporate liquidity and corporate
conservatism
3- There is a significant relationship between the length of cash conversion cycle
and corporate conservatism
4- There is a significant relationship between sustainable growth rate and
timeliness
5- There is a significant relationship between corporate liquidity and timelines
6- There is a significant relationship between the length of cash conversion cycle
and timeliness
Statistical population and sampling
The statistical population of this research includes all the non-financial corporations
registered in Tehran Stock Exchange from early 2006 until late 2010 (a total of 450
corporations.
Statistical sampling was conducted through systematic deletion method and a
number of 90 corporations remained as final samples with respect to all the
limitations applied to the statistical population.
ijcrb.webs.com
415

JANUARY 2013
VOL 4, NO 9

Statistical samples were selected in accordance to the following four criteria:
1- The fiscal year-end of corporation is in late February.
2- No alterations should have been made in the fiscal year of corporation
between 2006 and 2010.
3- The corporation should have been registered in the Tehran Stock Exchange
prior to 2005 fiscal year-end.
4- The corporations in question still remain a member of Tehran Stock
Exchange until the end of 2010.
Measurement of research variables
The following model was used in this research in order to determine conservatism:
Model (1)
NI
it
=
0
+
1
RD
it
+
2
R
it
+
3
R
it
RD
it
+
it
Yuan,D.,Herve,s.(2006)

1. Conservatism of net earnings: The RRD coefficient in regression equation
must be taken into account in order to measure the attribute of
conservatism in net earning with regards to application of conservatism in
corporations. In case the
3
coefficient to RRD is significant (P0.5) then it
can be said that conservatism is being applied in corporations.
ijcrb.webs.com
416

JANUARY 2013
VOL 4, NO 9

Where NI
it
is:

Market value of stockholders equity is derived as follows:
Market value of stockholders equity= final price of each stock*total number of
corporation stock
R
it
: annual turnover of corporation stocks
: Coefficient
RD (virtual variable): The negative turnover index for corporations with negative
turnover is equal to 1, otherwise it would be zero.
If RD is zero (positive turnover i.e. positive reaction of earning to turnover), then the
Bassou model would be as follows:

N
it
=
0
+
2
R
it
( 1
If RD is 1 (negative turnover i.e. negative reaction of earning to turnover), then the
Bassou model would be as follows:
N
it
=
0
+
1
+ (
2
+
3
)

R
it
( 2
R
it
coefficient reflects the reaction of R
it
variable to the dependent variable
(earning).
3
is the difference between the coefficients of R in first and second scenarios. So,
in case
3
is larger than 1, it means that R is larger in the second case. In other
words, if
3
is significant (p0.5) it means that the reaction of earning to negative
turnover is greater i.e. there is conservatism in the corporations.
R
it
is the annual turnover of corporate stocks which is derived as follows:
ijcrb.webs.com
417

JANUARY 2013
VOL 4, NO 9

2. Timeliness of net earnings: Timeliness is measured using R variable
coefficient from model (1). This model discusses the relationship between
net earnings (homogenized by the variable for market value of
stockholders equity at the end of year t-1) and stocks turnover. If the R
coefficient is significant (P0.5), then timeliness may be attributed to the
corporation.
Model (2)
NI
it
=
0
+
1
R
it
+
it
Yuan,D.,Herve,S.(2006)

N
it
is calculated similar to Bassous model.
R
it
is also calculated the same as Bassous model.
Corporate characteristics
Various criteria are discussed in different financial management literatures regarding the
measurement of corporate characteristics. The characteristics discussed in this research
(i.e. the length of cash conversion cycle, liquidity and sustainable growth rate) are
calculated as follows.
1) Length of conversion cycle

CCC: cash conversion cycle

ijcrb.webs.com
418

JANUARY 2013
VOL 4, NO 9

2) Liquidity

LIQ: liquidity
Near cash assets are calculated as follows:
Near cash assets=(total assets*liquidity)-cash
3) Sustainable growth rate of earning
SG=ROE(1-DIV)
SG: sustainable growth rate
ROE: return on equity
DIV: dividend

Testing hypotheses and analysis of findings

First hypothesis- there is a significant relationship between sustainable growth
rate and conservatism.
The results derived from the regression tables corresponding to this hypothesis
are presented in Table 1.

ijcrb.webs.com
419

JANUARY 2013
VOL 4, NO 9

Table 1. Results for testing of hypothesis 1-1
Corporations with high sustainable growth rate Corporations with low sustainable
growth rate
Estimation period: 2006-2010
NI
it
=
0
+
1
RD
it
+
2
R
it
+
3
R
it
RD
it
+
it

Cross-section fixed (dummy variables)
R square 0.814 0.895
Adjusted R square 0.764 0.867
F 16.48 32.235
Probability (Prob) 0 0
Durbin-Watson
statistic
1.57 1.957
Explanatory
variable
factor T statistic
prob
Significanc
e level
factor T statistic prob
Significance
level
R
-
3.42
-3.71 0.0003 significant .008 .022 0.98 insignificant
RRD
-
6.33
-2.04 .0422
insignifica
nt
-33.16 -2.401 0.01
significant
RD
-
5.73
-3.91
.0001
significant
-16.92 -2.255 0.02
significant
intercept 57.4 35.48 0 significant 99.27 89.152 0 significant

Considering the F statistic provided in the tables and their corresponding
probabilities in both corporations with high and low sustainable growth rates, the
examined regression model is significant. Meanwhile, the Durbin-Watson statistic
in both models indicates non-linearity between error terms. Therefore, a linear
relationship exists between dependent and independent variables. The adjusted R
square factors of models are 0.76 and 0.86, respectively. It means that 76% and
86% of alterations in net earnings may respectively be predicted in corporations
with high and low sustainable growth rates using the aforesaid model. The RRD
coefficient must be taken into account when studying the conservatism in
corporations. In case this variable is significant, then conservatism is being applied
in corporations. Considering the results presented in table, RRD seems to be
significant in case of corporations with low sustainable growth rates while this
variable is insignificant in case of corporations with high sustainable growth rates.
Corporations with lower sustainable growth rates apply more conservatism,
therefore sustainable growth rate has a reverse relationship with conservatism
because increase in sustainable growth rate would lead to mitigation of risk in a
corporation and as a result of risk mitigation less conservatism will be applied.
ijcrb.webs.com
420

JANUARY 2013
VOL 4, NO 9

Second hypothesis- there is a significant relationship between liquidity and conservatism.
The results derived from the regression tables corresponding to this hypothesis
are presented in Tables 2 and 3.
Corporations with high liquidity Corporations with low liquidity
NI
it
=
0
+
1
RD
it
+
2
R
it
+
3
R
it
RD
it
+
it

R square 0.943 0.754
Adjusted R square 0.928 0.689
F 62.09 11.536
Durbin-Watson
statistic
1.768 1.811
Explanatory
variable
factor T statistic
prob
Significance
level
factor
T statistic
prob
Significance
level
R -0.23 -0.65 0.514 insignificant -0.52 -0.636 0.525 insignificant
RRD -24.26 -2.67 0.008 significant -0.61 -2.642 0.009 significant
RD -20.36 -2.42 0.016 significant -8.84 -3.460
0.0007
significant
variable Z statistic prob Significance level
liquidity 26.033 0 significant
Z
0.95
=1.65
probabilities in both corporations with high and low liquidities, the examined
regression model is significant. Meanwhile, the Durbin-Watson statistic in both
models indicates non-linearity between error terms. Therefore, a linear relationship
exists between dependent and independent variables. The adjusted R square factors
of models are 0.92 and 0.68, respectively. It means that 92% and 68% of alterations
in net earnings may respectively be predicted in corporations with high and low
liquidities using the aforesaid model. Considering the results presented in table,
RRD seems to be significant in case of corporations with both low and high
liquidities. Thus, the Cramers V test is carried out in order to determine the R
square difference in the two groups of low and high liquidity corporations. Results
show that this difference is significant. So, the Corporations with higher liquidity
apply more conservatism, therefore liquidity has a direct relationship with
ijcrb.webs.com
421

JANUARY 2013
VOL 4, NO 9

conservatism because one indication suggesting risk of uncertainty about
consistency of corporate activities is the inability to reimburse the debts.
Application of conservatism may be an efficient approach to avoid reduction in
liquidity and retention of consistency in corporate activities.
Third hypothesis- there is a significant relationship between cash conversion cycle
and conservatism.
The results derived from the regression tables corresponding to this hypothesis are
presented in Tables 4.
Corporations high cash flow cycle Corporations with low cash flow cycle
NI
it
=
0
+
1
RD
it
+
2
R
it
+
3
R
it
RD
it
+
it

R square 0.755 0.921
Adjusted R
square
0.690 0.900
F 11.617 44.159
Durbin-Watson
statistic
1.801 1.725
Explanatory
variable
factor
T statistic
prob
Significance level
factor
T statistic
prob
Significance level
R -1.25 -1.517
0.13
0
insignificant -0.198 -0.0695 0.487 insignificant
RRD -4.66 -1.553
0.12
2
insignificant -8.204 -2.292 0.023 significant
RD -31.37 -3.550 0.0005 significant -6.573 -1.467 0.141 insignificant

probabilities in both corporations with high and low lengths of cash conversion
cycle, the examined regression model is significant. Meanwhile, the Durbin-Watson
statistic in both models indicates non-linearity between error terms. Therefore, a
linear relationship exists between dependent and independent variables. The
adjusted R square factors of models are 0.69 and 0.90, respectively. It means that
69% and 90% of alterations in net earnings may respectively be predicted in
corporations with high and low lengths of cash conversion cycle using the aforesaid
model. Considering the results presented in table, RRD seems to be significant in
ijcrb.webs.com
422

JANUARY 2013
VOL 4, NO 9

case of corporations with low length of cash conversion cycle while this variable is
insignificant in case of corporations with high length of cash conversion cycle.
Corporations with lower cash conversion cycle apply more conservatism.
Therefore, cash conversion cycle has a reverse relationship with conservatism.
Therefore, more conservatism should be applied in corporations in order to clarify
earnings and avoid abuse by some managers who are seeking higher profits.
Fourth hypothesis- there is a significant relationship between sustainable growth
rate and timeliness.
Corporations with high sustainable growth rate Corporations with low sustainable growth rate
NI
it
=
0
+
1
R
it
+
it

R square 0.787 0.911
Adjusted R
square
0.733 0.888
F 14.705 40.735
Probability
(Prob)
0 0
Durbin-Watson
statistic
1.522 1.895
Explanatory
variable
Significance level
Significance
level
R
-
4.84
-2.559
0.01
1
significant -0.292 -0.581 0.05 insignificant

probabilities in both corporations with high and low sustainable growth rates, the
examined regression model is significant. Meanwhile, the Durbin-Watson statistic
in both models indicates non-linearity between error terms. Therefore, a linear
relationship exists between dependent and independent variables. The adjusted R
square factors of models are 0.73 and 0.83, respectively. It means that 73% and
83% of alterations in net earnings may respectively be predicted in corporations
with high and low sustainable growth rates using the aforesaid model. The RRD
coefficient must be taken into account when studying the timeliness in corporations.
In case this variable is significant, then timeliness is being applied in corporations.
ijcrb.webs.com
423

JANUARY 2013
VOL 4, NO 9

Considering the results presented in table, RRD seems to be significant in case of
corporations with high sustainable growth rates while this variable is insignificant
in case of corporations with low sustainable growth rates. Corporations with higher
sustainable growth rates apply more timeliness. Therefore, sustainable growth rate
has a direct relationship with timeliness. Having high growth rates, a corporation
may yield a higher financial flexibility for development and the profitability
increases. Thus, the corporation should provide timely data to investors and
creditors in order to inform them of utilization of economic resources and results
from business units, facilitating more optimized decision making and increased
profitability.
Fifth hypothesis- there is a significant relationship between liquidity and timeliness.


probabilities in both corporations with high and low liquidities, the examined
regression model is significant. Meanwhile, the Durbin-Watson statistic in both
models indicates non-linearity between error terms. Therefore, a linear relationship
exists between dependent and independent variables. The adjusted R square factors
of models are 0.87 and 0.68, respectively. It means that 92% and 68% of alterations
in net earnings may respectively be predicted in corporations with high and low
ijcrb.webs.com
424

JANUARY 2013
VOL 4, NO 9

liquidities using the aforesaid model. Considering the results presented in table,
RRD seems to be significant in case of corporations with high liquidities, while this
variable is insignificant in case of corporations with low liquidity. So, the
Corporations with higher liquidity apply more timeliness, therefore liquidity has a
direct relationship with timeliness because the outdated data have already had their
impact on the stock prices, thus they would not yield earnings. Thus, a quicker
access to accounting information would have a positive effect on decision making
and would increase earnings.
Sixth hypothesis- there is a significant relationship between cash conversion cycle
and timeliness.
presented in Tables 7 and 8.
Corporations with high cash flow cycle Corporations with low cash flow cycle
NI
it
=
0
+
1
R
it
+
it

R square 0.737 0.92
Adjusted R
square
0.672 0.90
F 11.200 11.30
Durbin-Watson
statistic
1.720 1.68
Explanatory
variable
factor
T statistic
prob
Significance
level
factor
T statistic
prob
Significance
level
R -5.30 -2.96 0.003 significant -1.37 -3.397 0.0008 significant


variable Z statistic prob Significance
level
Cash conversion cycle 11.950 0 significant
Z
0.95
=1.65
probabilities in both corporations with high and low lengths of cash conversion
ijcrb.webs.com
425

JANUARY 2013
VOL 4, NO 9

cycle, the examined regression model is significant. Meanwhile, the Durbin-Watson
statistic in both models indicates non-linearity between error terms. Therefore, a
linear relationship exists between dependent and independent variables. The
adjusted R square factors of models are 0.67 and 0.90, respectively. It means that
67% and 90% of alterations in net earnings may respectively be predicted in
corporations with high and low lengths of cash conversion cycle using the aforesaid
model. Considering the results presented in table, RRD seems to be significant in
case of corporations with both low and high length of cash conversion cycle. Thus,
the Cramers Z test is carried out in order to determine the R square difference in
the two groups of low and high cash conversion cycle corporations. Results show
that this difference is significant. So, the Corporations with lower cash conversion
cycle apply more timeliness, therefore the length of cash conversion cycle has a
reverse relationship with timeliness because managers tend to prolong the length of
cash conversion cycle and extend the collection of accounts receivable,
consequently reducing profitability and cash flow of corporation. Therefore,
decrease in liquidity and profitability reduces the motive necessary for timely
provision of data.
Discussion and conclusion
The first of secondary hypotheses was tested with regards to impact of sustainable
growth rate on conservatism. The results suggested a reverse significant relationship
between sustainable growth rate and conservatism. And the hypothesis was
approved.
This could probably be due to risk reduction as a consequence increase in
sustainable growth rate and in case the risk is mitigated, less conservatism is
applied in corporations. These results are consistent with those of Lee et al (2001).
In case of secondary hypothesis number two, the relationship between liquidity and
conservatism was discussed and then analyzed. Results showed that there exists a
direct significant relationship between liquidity and conservatism. Since one
indication suggesting risk of uncertainty about consistency of corporate activities is
the inability to reimburse the debts, application of conservatism may be an efficient
approach to avoid reduction in liquidity and retention of consistency in corporate
activities.
These results are consistent with those of Lee et al. (2001) but do not comply with
those of Ball et al. (2005).
The third of secondary hypotheses was discussed and tested in order to explain the
relationship between the length of cash conversion cycle and conservatism. The
ijcrb.webs.com
426

JANUARY 2013
VOL 4, NO 9

outcomes suggested a reverse relationship between the length of cash conversion
cycle and conservatism. Therefore, more conservatism should be applied in
corporations in order to clarify earnings and avoid abuse by some managers who are
seeking higher profits.
These results are consistent with those of Haitham (2001) but do not comply with
those of Fransic (2005).
The fourth of secondary hypotheses was discussed and tested in order to explain the
relationship between the sustainable growth rate and timeliness. The results
suggested a direct significant relationship between sustainable growth rate and
timeliness. It can be said that a corporation having high growth rates may yield a
higher financial flexibility for development and the profitability increases. Thus, the
corporation should provide timely data to investors and creditors in order to inform
them of utilization of economic resources and results from business units,
facilitating more optimized decision making and increased profitability.
These results are consistent with those of Dogan et al. (2007) but do not comply
with those of Rubin et al (2000).
In case of secondary hypothesis number five, the relationship between liquidity and
timeliness was discussed and then analyzed. The results showed a direct
relationship between liquidity and timeliness. So, the Corporations with higher
liquidity apply more timeliness, therefore liquidity has a direct relationship with
timeliness because the outdated data have already had their impact on the stock
prices, thus they would not yield earnings. Thus, a quicker access to accounting
information would have a positive effect on decision making and would increase
earnings.
This conclusion is consistent with that of Henry (2008) wherein liquidity and
timeliness are considered to be directly related.
The sixth of secondary hypotheses was discussed and tested in order to explain the
relationship between the length of cash conversion cycle and timeliness. The results
suggested a reverse significant relationship between the length of cash conversion
cycle and timeliness. It can be said that a corporation having high growth rates may
yield a higher financial flexibility for development and the profitability increases.
Thus, the corporation should provide timely data to investors and creditors in order
to inform them of utilization of economic resources and results from business units,
facilitating more optimized decision making and increased profitability. This is due
to the fact that managers tend to prolong the length of cash conversion cycle and
extend the collection of accounts receivable, consequently reducing profitability
ijcrb.webs.com
427

JANUARY 2013
VOL 4, NO 9

and cash flow of corporation. Therefore, decrease in liquidity and profitability
reduces the motive necessary for timely provision of data.
This conclusion is consistent with that of Ensee (2000).
Applicable suggestions
1- Since the combination of timeliness and conservatism represents clarity of
earnings and is highly demanded by users as a qualitative attribute, and the
clarity of earning in turn is influential in decision-making of user with
regards to investments and taking into account the results of current study
whereby the effects of three variables of liquidity, sustainable growth rate
and length of cash conversion cycle on conservatism and timeliness were
confirmed, the investors are highly recommended to consider all these
parameters when adopting major economic decision.
2- Results derived from analysis of Bassous turnover estimation showed that
the aforesaid model reflects nearly 80 percent of alterations in net earnings
within the capital market of Iran. Therefore, decision makers and investors
are recommended to apply this model for estimation of turnover.
For further studies:
Since there are many factors affecting the qualitative attributes of accounting, it is
suggested to consider and test the impact of other factors such as leverage ratio,
debt and profitability on qualitative attributes of accounting.
This conclusion is consistent with that of Henry (2008) wherein liquidity and
timeliness are considered to be directly related.
Limitations of the study
Since the research samples were selected from among corporations registered in
Tehran Stock Exchange and the sampled corporations do not represent the entire
active business units in the country in terms of size, industry and other factors,
therefore generalization of results must be carried out with caution.

ijcrb.webs.com
428

JANUARY 2013
VOL 4, NO 9

References

Ansah,S.,O.(2000)."timliness of corporate financial reporting in merging capital
markets:empirical evidence from the Zimbabwe stock xchange" Accounting an
Business Research, 3. (3) ,pp. 241-254.
Basu,s.(1997)."Timeliness and conservatism Changes over time in the properties of
accounting income in France" journal of Accounting and Finance, Vol. 5, pp. 92-
107.
Basu,s.,Hwang,l.,and C,l.( 2001)." Auditor Conservatism and Quarterly Earnings,
Baruch" College and California state University Hayward, journal of Accounting
and Finance ,pp.1-38.
Ball , R .Shivakumar ,L.(2005)."earnings quality in uk private firms: comparative
loss recognition timeliness", journal of accounting and economics,Vol.39,pp.83-
128.
Dogan,M. Cos Kun E. and O.Celik (2007)."Is Timing of Financial Reporting
Related to Firm Performance? An Examination on Is e Listed Company"
Iinternational Research Journal of Finance and Economic ,ISSN 1450-2887 Issue
Henry,J.(2008)."asymmetry in cash flows accounting conservatism" University of
Oulu - Department of Accounting and Finance, Working Paper Series,pp.1-39
Haitham,n.(2010).Working Capital Management and Firms Profitability :An
Optimal Cash Conversion Cycle,pp.1-18
Francis J, & Ryan ,Lafond & Per , Olsson & Katherine, Schipper.(2003). " Cost
capital and earning attributes " Duke University of Wisconsin , Working
paper,pp.1-42
Lee,s.,Ching,L.(2010)."Differences in conservatism between Big 8 and non-Big 8
Auditors" concurrent session 4- audit quality,pp.1-55
Lee,J.(2001)."the role of accounting conservatism in firms financial decisions"
Singapore Management University , working papers series , Level 4,pp.1-53
Pae ,j. Thornton ,d. Welker ,m.(2005),"The Link Between Earnings Conservatism
and the Price to Book Ratio "Contemporary accounting researchTvol22 no.3,pp
693717. Korea University Business School, Queen's University, Queen's University
- Queen's School of Business, Working Paper Series ,pp.1-29
Robin,A.,Ball,R.,Shuang,j.(2000)."Incentives Versus Standards: Properties of
Accounting Income in four east Asian countries ,and implications for acceptance of
IAS" .Journal Of Accounting and Economics,vol.4,pp 1-41
ijcrb.webs.com
429

JANUARY 2013
VOL 4, NO 9

Uday,C.,Charles e,w.,Gregory ,u.(2004)."income conservatism in the u.s
technology sector". SUNY University at Albany, University of Rochester - Simon
Graduate School of Business , Emory University - Department of Accounting,
Simon School Working aperNoFR04-01,pp.1-62
Yuan,d.,Herve,s.(2006)."Timeliness and conservatism "Accounting and Finance
.vol 5, no.pp.2, 92-107
Wendy,B.,Philip,B.&Wevwen,Z.(2012)."The relationship between
disclosure,information timeliness and corporate governance" Accounting and
Finance.vol.31,pp.1-48

Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

1 - Impact of Corporate Characteristics On The Qualitative Attributes of Accounting Earning

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1 - Impact of Corporate Characteristics On The Qualitative Attributes of Accounting Earning

Uploaded by

Copyright:

Available Formats

ijcrb.webs.

You might also like