THE RELATIONSHIP BETWEEN CONSERVATIVE POLITICS AND FINANCIAL PERFORMANCE AT COMPANIES LISTED ON THE TEHRAN STOCK EXCHANGE

Transcription

1 Inernaional Journal of Accouning Research Vol., No. 7, 4 TH RLATIONSHIP TWN CONSRVATIV POLITICS AND FINANCIAL PRFORMANC AT COMPANIS LISTD ON TH THRAN STOCK XCHANG Vahid Mohammadi, Dr. Azim Aslani, Dr. Mohammad Imani arandagh Deparmen of Accouning, Science and research ranch, Islamic Azad Universiy, Ardabil, Iran Assisan Professor a Deparmen of Accouning in Urumiyeh Universiy, Wes Azerbaijan, Urumiyeh, Iran Absrac This sudy is a Correlaional research and he ypes of research is descripive. The populaion of his sudy are he companies ha acceped a Tehran sock exchange during he resen years. They were includes 458 companies in 37 indusry groups.a sample survey was conduced by he eliminaion mehod. To collecing daa wih considering companies siuaion, companies were seleced as sample from indusry groups. In order o analyze he daa resuled from colleced quesionnaires deducive and descripive saisical mehods are used. The resuls K-S Tes shows he es disribuion is Normal. So we can use Muli Regression (Chow Tes, Hausman Tes, Panel daa) o es he hypohesis of he research. In order o deermine he relaionship beween he variables of he sudy, he SPSS ool has been used. Findings show ha hypohesis one and hree have confirmed H and hypohesis wo has rejeced H. The p-value in hypohesis one is.6, i means han here is a relaionship beween reurn on asses and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The p-value hypohesis wo is.34, i means han here is no relaionship beween reurn on equiy and companies conservaive ne income a Companies lised on he Tehran Sock xchange.the p-value hypohesis hree is., i means han here is a relaionship beween Q-Tobin measure and companies conservaive ne income a Companies lised on he Tehran Sock xchange. Keywords: financial performance, reurn on asses, reurn on equiy, Q-Tobin measure, conservaive poliics, INTRODUCTION Accounans mus use heir judgmen o record ransacions ha require esimaion. The number of years ha equipmen will remain producive and he porion of accouns receivable ha will never be paid are examples of iems ha require esimaion. In reporing financial daa, accounans follow he principle of conservaism, which requires ha he less opimisic esimae be chosen when wo esimaes are judged o be equally likely. For example, suppose a manufacuring company's Warrany Repair Deparmen has documened a hree-percen reurn rae for produc X during he pas wo years, bu he company's ngineering Deparmen insiss his reurn rae is jus a saisical anomaly and less han one percen of produc X will require service during he coming year. Unless he ngineering Deparmen provides compelling evidence o suppor is esimae, he company's accounan mus follow 4

2 Inernaional Journal of Accouning Research Vol., No. 7, 4 he principle of conservaism and plan for a hree-percen reurn rae. Losses and coss - such as warrany repairs - are recorded when hey are probable and reasonably esimaed. Gains are recorded when realized (Vazifeh Damirchi e al, : ). Accouning conservaism is radiionally defined by he adage anicipae no prof bu anicipae all losses (liss, 4). Anicipaing profis means recognizing profis before here is a verifiable legal claim o he revenues generaing hose profis. Conservaism does no imply ha all revenue cash flows should be received before profis are recognized. Thus he issue is one of verifiabiliy. In he empirical lieraure he adage is inerpreed as represening he accounan s endency o require a higher degree of verificaion o recognize good news as gains han o recognize bad news as losses (asu, 7, p. 7). Conservaism is he asymmery in he verificaion requiremens for gains and losses. This inerpreaion allows for degrees of conservaism: he greaer he difference in degree of verificaion required for gains versus losses, he greaer he conservaism. Using conservaism o describe conservaism s income saemen effec for a paricular period was popularized by conservaism s criics. Tha usage does no fi wih conservaism iself. Conservaism reserves he use of he erm for he balance shee and for income or earnings cumulaed since he firm began operaion. Prior lieraure defines accouning conservaism as he asymmeric verifiabiliy of accouning gains versus losses, i.e., he verifiabiliy hreshold for gains is greaer han ha for losses (Was, 3), while an official definiion in he FAS Saemen of Financial Accouning Conceps No. saes ha conservaism is a pruden reacion o uncerainy o ry o ensure ha uncerainies and risks inheren in business siuaions are considered. To develop a poliical uncerainy hypohesis, Ramanna and Roychowdhury, () argue ha in an elecion year, uncerainy abou he elecion oucome and consequen changes in public policy can have an effec on conservaism for wo reasons. Firs, poliical uncerainy increases he uncerainy abou he fuure cash flows of asses ha are already in place (rogaard and Dezel, ). Second, Julio and Yook () find ha rising poliical uncerainy leads firms o increase cash holdings and reduce corporae invesmen before elecions firms defer invesmens unil poliical uncerainy is resolved. Was (3) provides a number of inuiive explanaions for he beneficial implicaions of conservaive accouning, in paricular from a conracing perspecive. His main argumen is ha conservaism consrains opporunisic behavior and offses biases inroduced by selfineresed paries. A subjecive measure of how well a firm can use asses from is primary mode of business and generae revenues. This erm is also used as a general measure of a firm's overall financial healh over a given period of ime, and can be used o compare similar firms across he same indusry or o compare indusries or secors in aggregaion. mpirical finance ofen requires proxies for variables of ineres. However, proxies mus be chosen carefully since inappropriae proxies can cause a hypohesis o be spuriously rejeced or acceped. Indeed, he need for proxies resuls in join ess of he saed hypoheses and he validiy of he chosen proxies. Ideally, proxies would originae from a heoreical framework ha jusifies heir use under reasonable assumpions ha have empirical suppor. Following his ideal, we provide a heoreical framework o highligh an endogeneiy problem wih using Tobin s q o measure firm performance (Dybvig and Warachka, ). The Tobin q has been employed paricularly by manufacuring firms o explain a number of diverse corporae phenomena. These have enailed (a) cross-secional differences in 5

3 Inernaional Journal of Accouning Research Vol., No. 7, 4 invesmen and diversificaion decisions, (b) he relaionship beween managerial equiy ownership and firm value, (c) he relaionship beween managerial performance and ender offer gains, invesmen opporuniies and ender offer responses, and (d) financing, dividend, and compensaing policies (Chung and Pru 4). I is a saisic ha migh serve as a proxy for he firm's value from an invesor's perspecive. y definiion, i is he raio beween he marke value of he firm's asses and he replacemen value of hose asses calculaed as follows: q= (MVS + MVD)RVA Where: MVS = Marke value of all ousanding sock MVD = Marke value of all deb RVA = Replacemen value of all producion capaciy (Chung and Pru 4). General managers mus make sure he capial hey employ is used producively. Capial is relaively mobile. If i isn used producively, i will evenually move on o where i can generae a compeiive reurn. ROA provides a measure for assessing he overall efficiency wih which farm asses are used o produce ne income from operaions. I also is indicaive of managemen s effeciveness in deploying capial, because i is cerainly possible o be efficien and ye poorly posiioned in erms of how capial is being uilized. Reurn on asses, as an absolue dollar amoun, is calculaed as ne farm income plus farm ineres expense minus he esimaed value of any unpaid operaor labor and managemen used in he farming operaion. Tha absolue dollar amoun is convered o a rae of reurn on asses (ROA) by dividing by he average oal value of farm asses. Reurn on asses is probably he single bes overall measure of operaing performance. I ies ogeher he resuls of operaions wih he resources used o produce hose resuls. I is also relaively easy o inerpre. u wha acion should be aken o correc a poor reurn on asses? veryhing he manager did boh righ and wrong in operaing he business is refleced in he reurn on asses, which makes he appropriae correcive acion difficul o deermine wihou more informaion. The fac ha financial measures are inerrelaed can help solve his dilemma (Purdue xension, ). Deb is an imporan componen of he capial srucure of many farm businesses. Deb provides needed resources o ake advanage of profi opporuniies. When used producively, deb can leverage equiy capial in a way ha is very beneficial financially. u financial leverage is imparial and unforgiving. Deb works jus as well o he derimen of a farm business when i is used unproducively, as i works o benefi a farm ha is managed wisely. General managers need o know wheher and o wha exen financial leverage is working eiher for or agains heir farm business. The rae of reurn on equiy (RO) provides useful informaion abou he performance of deb in he capial srucure. RO is calculaed by dividing ne farm income minus he esimaed value of any unpaid operaor labor and managemen by average oal farm equiy (ne worh). RO should exceed ROA for farms ha borrow money. If RO doesn exceed ROA, i means ha borrowed capial isn earning enough o pay is cos. Alernaively, RO may be well above ROA and may indicae poenial o benefi from addiional invesmens in he farm (Purdue xension, ). ANALYTICAL FRAMWORK OF RSARCH General analyical framework model is esimaed as follows. AF i * Independen Variable 6

4 Inernaional Journal of Accouning Research Vol., No. 7, 4 H : i Model is no significan H : i Model is significan And he models used in his sudy is formulaed as follows: The firs model corresponds o he firs hypohesis: ROAi, 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea The second model corresponds o he second hypohesis: RO 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea The hird model corresponds o he hird hypohesis: 3Q 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea MTHODOLOGY Correlaional research mehodology used in his sudy and he ypes of research is descripive. The populaion of his sudy are he companies ha acceped a Tehran sock exchange during he resen years. They were includes 458 companies in 37 indusry groups. A sample survey was conduced by he eliminaion mehod. To collecing daa wih considering companies siuaion, companies were seleced as sample from indusry groups. In order o analyze he daa resuled from colleced quesionnaires deducive and descripive saisical mehods are used. The resuls K-S Tes shows he es disribuion is Normal. So we can use Muli Regression (Chow Tes, Hausman Tes, Panel daa) o es he hypohesis of he research. In order o deermine he relaionship beween he variables of he sudy, he SPSS ool has been used. RSULTS AND CONCLUSION - Descripive Resuls Table shows he Descripive Resuls of variables. Variable Mean SD Companies conservaive ne income..76 Reurn on asses 3.6. Reurn on equiy Q-Tobin measure.3. 7

5 Inernaional Journal of Accouning Research Vol., No. 7, 4 Dummy variable reurns negaive sock Sock reurns conrasing of Dummy variable reurns negaive sock and sock reurn Financial leverage raio.6. Growh opporuniies.7.6 The value of sock marke Firm size Logarihm of annual sales.8.38 Sysemaic risk.8.4 According o able he Companies conservaive ne income.; Reurn on asses.3.6; Reurn on equiy and Q-Tobin measure.3 have mean. The highes mean has shown in Reurn on equiy and lowes mean has shown Q-Tobin measure. - Hypoheses resuls A) Hypohesis resuls The firs hypohesis was; here is a relaionship beween reurn on asses and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The saisical way of analysis his hypohesis is wo ways, H is accepance of hypohesis and H is rejecing of hypohesis. We have used he model () o esimae his hypohesis according o he panel daa and if he coefficien was significan a a confidence level of 5% will be approved. ROAi, 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea () : : To confirm he suiabiliy of panel daa mehod, we have used Chow Tes and o deermining fixed effecs or random effecs in order o beer esimae, we have used Hausman Tes. The resuls of hese ess are presened in. Table Chow Tes and Hausman Tes resuls Tes Saisic Saisic df P-Value Chow f Hausman According o Chow es resul P-Value in 5% confidence level is., and H has rejeced, i means ha we can be used panel daa mehod. Also, according o Hausman es resuls P- Value was less han.5 and acceped H.Therefore, i is necessary o esimae he model using fixed effecs. 8

6 Inernaional Journal of Accouning Research Vol., No. 7, 4 According o able 3 Jarque-era, reusch-pagan, Durbin-Wason and Ramsey es resuls show ha model's lineariy has confirmed and he model is no specified error. Table 3: Tes resuls concerning he saisical assumpions of he model () Ramsey Durbin- Wason reusch-pagan Jarque-era P Value F D P Value F P Value According o he above able he model will like his: ROA.7Lev.7ea.M.78DR.48MV.47RT.385Size Table 4: The firs hypohesis resuls of he sudy wih using of fixed-effecs. Dependen variable: companies conservaive ne income Variable Coefficien T-Tes P- Value.888DR* RT.6LnSales Relaion Fixed componen Negaive Reurn on asses Negaive Dummy variable reurns Meaningless negaive sock Sock reurns Meaningless conrasing of Dummy -.88 variable reurns negaive sock Meaningless and sock reurn Financial leverage raio Meaningless Growh opporuniies Meaningless The value of sock marke Meaningless Firm size Posiive Logarihm of annual sales Posiive Sysemaic risk Meaningless R =.6 F=58. p-value=. According o able 4 considering he significan whole model, he p-value (.) was smaller han.5 and he model is confirmed. Deerminaion of coefficien model also indicae ha.6 percen of he companies conservaive ne income variable are debaed by he variables in he model. The second hypohesis was; here is a relaionship beween reurn on equiy and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The saisical

7 Inernaional Journal of Accouning Research Vol., No. 7, 4 way of analysis his hypohesis is wo ways, H is accepance of hypohesis and H is rejecing of hypohesis. We have used he model () o esimae his hypohesis according o he panel daa and if he coefficien was significan a a confidence level of 5% will be approved. RO 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea () : : To confirm he suiabiliy of panel daa mehod, we have used Chow Tes and o deermining fixed effecs or random effecs in order o beer esimae, we have used Hausman Tes. The resuls of hese ess are presened in. Table 5 Chow Tes and Hausman Tes resuls Tes Saisic Saisic df P-Value Chow f Hausman According o Chow es resul P-Value in 5% confidence level is., and H has rejeced, i means ha we can be used panel daa mehod. Also, according o Hausman es resuls P- Value was less han.5 and acceped H.Therefore, i is necessary o esimae he model using fixed effecs. According o able 6 Jarque-era, reusch-pagan, Durbin-Wason and Ramsey es resuls show ha model's lineariy has confirmed and he model is no specified error. Table 6: Tes resuls concerning he saisical assumpions of he model () Ramsey Durbin- Wason reusch-pagan Jarque-era P Value F D P Value F P Value According o he above able he model will like his: RO.88Lev.ea M.47DR.4787MV.55RT.57Size Table 7: The firs hypohesis resuls of he sudy wih using of fixed-effecs. Dependen variable: companies conservaive ne income Variable Coefficien T-Tes P- Value.84DR * RT.5468LnSales Relaion Fixed componen Negaive

8 Inernaional Journal of Accouning Research Vol., No. 7, 4 Reurn on equiy Negaive Dummy variable reurns Meaningless negaive sock Sock reurns Meaningless conrasing of Dummy -.84 variable reurns negaive Meaningless sock and sock reurn Financial leverage raio Meaningless Growh opporuniies Meaningless The value of sock marke Meaningless Firm size Posiive Logarihm of annual sales Posiive Sysemaic risk Meaningless R =.83 F=57.6 p-value=. According o able 7 considering he significan whole model, he p-value (.) was smaller han.5 and he model is confirmed. Deerminaion of coefficien model also indicae ha.83 percen of he companies conservaive ne income variable are debaed by he variables in he model. The hird hypohesis was; here is a relaionship beween Q-Tobin measure and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The saisical way of analysis his hypohesis is wo ways, H is accepance of hypohesis and H is rejecing of hypohesis. We have used he model (3) o esimae his hypohesis according o he panel daa and if he coefficien was significan a a confidence level of 5% will be approved. 3Q 4DR 5RTi, * RTi, 7Lev 8M MV Size LnSales ea (3) : : To confirm he suiabiliy of panel daa mehod, we have used Chow Tes and o deermining fixed effecs or random effecs in order o beer esimae, we have used Hausman Tes. The resuls of hese ess are presened in. Table 8 Chow Tes and Hausman Tes resuls Tes Saisic Saisic df P-Value Chow f Hausman According o Chow es resul P-Value in 5% confidence level is., and H has rejeced, i means ha we can be used panel daa mehod. Also, according o Hausman es resuls P-

9 Inernaional Journal of Accouning Research Vol., No. 7, 4 Value was less han.5 and acceped H.Therefore, i is necessary o esimae he model using fixed effecs. According o able Jarque-era, reusch-pagan, Durbin-Wason and Ramsey es resuls show ha model's lineariy has confirmed and he model is no specified error. Table : Tes resuls concerning he saisical assumpions of he model () Ramsey Durbin- Wason reusch-pagan Jarque-era P Value F D P Value F P Value According o he above able he model will like his: Q.8Lev.8ea.73M.73DR.435MV.567RT.55Size.83DR* RT Table : The firs hypohesis resuls of he sudy wih using of fixed-effecs. Dependen variable: companies conservaive ne income Variable Coefficien T-Tes P- Value.535LnSales Relaion Fixed componen Negaive Reurn on equiy Negaive Dummy variable reurns Meaningless negaive sock Sock reurns Meaningless conrasing of Dummy -.83 variable reurns negaive Meaningless sock and sock reurn Financial leverage raio Meaningless Growh opporuniies Meaningless The value of sock marke Meaningless Firm size Posiive Logarihm of annual sales Posiive Sysemaic risk Meaningless R =.844 F=57.3 p-value=. According o able considering he significan whole model, he p-value (.) was smaller han.5 and he model is confirmed. Deerminaion of coefficien model also indicae ha 8.44 percen of he companies conservaive ne income variable are debaed by he variables in he model. Findings show ha hypohesis one and hree have confirmed H and hypohesis wo has rejeced H. So, we can say ha:

10 Inernaional Journal of Accouning Research Vol., No. 7, 4 The p-value in hypohesis one is.6, i means han here is a relaionship beween reurn on asses and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The p-value hypohesis wo is.34, i means han here is no relaionship beween reurn on equiy and companies conservaive ne income a Companies lised on he Tehran Sock xchange. The p-value hypohesis hree is., i means han here is a relaionship beween Q-Tobin measure and companies conservaive ne income a Companies lised on he Tehran Sock xchange. References. asu, S. 7. The conservaism principle and he asymmeric imeliness of earnings. Journal of Accouning & conomics 4 (December): liss, J.H. 4. Managemen hrough accouns. New York, NY: The Ronald Press Co 3. rogaard, J., Dezel, A.,. The asse pricing implicaions of governmen economic policy uncerainy. Working Paper, Universiy of Washingon 4. Chung, K.H., & Pru S.W. (4) A simple approx. Imaion of Tobin's q. Financial 5. Dybvig, Philip H. and Warachka, Mich, () Tobin s q Does No Measure Firm Performance: Theory, mpirics, and Alernaive Measures (Sepember, ). Available a SSRN: hp:ssrn.comabsrac=56444 or hp:dx.doi.org.3ssrn Julio,., Yook, Y.,. Poliical uncerainy and corporae invesmen cycles. Journal of Finance 67 (), Managemen, 3(3): Purdue xension (). Key Financial Performance Measures for Farm General Managers, Farm usiness Managemen for he s Cenury, Wes Lafayee, IN 477, Purdue xension, Knowledge o Go. Ramanna, K., Roychowdhury, S.,. lecions and discreionary accruals: vidence from 4. Journal of Accouning Research 48 (), Vazifeh Damirchi Q., Farhamand A., Javad Sh.,(). Accouning echnical exs, Ardabil: Mehr e Ghazal Publisher, Firs ediion. Was, R.L., 3. Conservaism in accouning par I: xplanaions and implicaions. Accouning Horizons 7 (3), 7 3