The Interactive Effect of Capital Productivity and Accounting Conservatism on Cost of Capital in Tehran and Istanbul Stock Exchange Markets

Subject Areas : Business Management

Ebrahim Navidi Abbaspour ¹ , Mehmet Suphi Orhan ²

1 - Department of Accounting and Financial Management, Faculty of Economics and Administrative Sciences, Atatürk University, Erzurum, Turkey
2 - Prof. Dr. M.Suphi Orhan, Accounting and Finance Department, Faculty of Economic and Administrative Sciences, Ataturk University, Erzurum, Turkey

Received: 2017-04-28 Accepted : 2018-11-07 Published : 2019-02-20

Keywords: Accounting Conservatism, Cost of Capital, Capital Productivity,

Abstract :

Capital productivity concerns the measurement of managerial capacity to make optimal use of capital as one of the company's most important and restricted resources and accounting conservatism is one of the qualitative characteristics of accounting information. More conservative companies are expected to have lower cost of capital and the increase in capital productivity is assumed to intensify this relationship. The present study explored the interactive effect of capital productivity and accounting conservatism on cost of capital in Tehran and Istanbul stock exchange markets. Accounting conservatism was measured as the chronological asymmetry between the profit and relative market value of stock to book value while capital productivity was operationalized in terms of the ratio of operating profit to the difference between total equity and debt in cash and short-term investment. The research sample comprised 118 companies listed in Tehran and 194 companies listed in Istanbul stock exchange markets over a period of 10 years from 2006 to 2015. The findings revealed that accounting conservatism, as the ratio of market to book value, was negatively correlated with cost of capital both in Tehran and Istanbul stock exchange markets; capital productivity was found to have a synergistic effect on this relationship. Additionally, accounting conservatism, as chronological asymmetry, was found to be negatively correlated with cost of capital in Istanbul stock exchange market.

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