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The Effect of Conservatism On The Usefulness of Financial Reporting
The Effect of Conservatism On The Usefulness of Financial Reporting
6;Jun 2012
361 ISSN 1661-464X
The effect of conservatism on the usefulness of financial reporting
Mohammad Ali Aghaei
+
Archives Des Sciences Vol 65, No. 6;Jun 2012
374 ISSN 1661-464X
in which:
U
: R
2
as Ohlson model for each study period (for investigating usefulness trend of financial
reporting) or b
VangWang model for each study period ( for investigating conservatism trend)
: The year of the study period. So, it is 1 for 1997 and one will be added to each next year
until 2010 which will be 14.
: Line slope which expresses the process in the usefulness of financial reporting or
conservatism) and its sign indicates the trend direction.
3.3. Hypothesis testing
The four following steps should accomplished in order to test the hypothesis:
Step 1: Investigating the related companies usefulness of financial reporting during study period
To investigate the companies usefulness of financial reporting, firstly, R
2
of that model
for all companies is calculated using Ohlson model (1995) in each year. Then, usefulness of
financial reporting diagram of each company is drawn according to yearly average R
2
.
Afterward, the trend index of the company is calculated by trend regression model. This index
expresses usefulness uptrend or downtrend. Doing this, the first hypothesis of study is tested.
Step 2: Investigating the conservatism of the companies during study period
Similar to the process done for investigating usefulness trend of financial reporting in
first step, conservatism trend is defined in this step. But, b1 index of Wang model (2009) is used
instead of R
2
of Ohlson model (1995).
Step 3: The classification of the companies according to the amount of conservatism
In this step, the average of conservatism index (