The Impact of Management Ability on Accounting Conservatism Considering the Moderating Role of Institutional Shareholders and Board Independence

Subject Areas : Ethics and accounting

Akbar Valizadeh Oghani ^{1 *} , Amir Ata Alizadeh ² , Maryam Erfan Esfanjani ³

1 - Assistant Professor., Department of Management and Accounting, Sara. C., Islamic Azad University, Sarab, Iran.
2 - MSc., Department of Accounting,, Seraj Institute of Higher Education, Tabriz, Iran.
3 - MSc., Department of Accounting,, Seraj Institute of Higher Education, Tabriz, Iran.

Received: 2025-03-18 Accepted : 2025-07-23 Published : 2025-08-11

Keywords: Managerial Ability, Accounting Conservatism, Institutional shareholders, Board Independence, Financial Transparency.,

Abstract :

Managerial ability, relying on the necessary skills and experience in analyzing business opportunities and risks, often leads to a reduction in excessive conservatism in financial reporting. This is because capable managers, through accurate estimation of future cash flows and asset values, do not feel the need to recognize unrealized losses. However, institutional shareholders and independent boards of directors, through continuous oversight and control mechanisms, ensure that such reduction remains within the framework of prudent standards and aligned with shareholders’ interests. Accordingly, the present study aims to investigate the effect of managerial ability on accounting conservatism, taking into account the moderating roles of institutional shareholders and board independence. This research is applied in terms of purpose, and descriptive-correlational, causal–ex post facto, and quantitative in nature. The data used in this study pertain to the financial information of 133 companies listed on the Tehran Stock Exchange during the period from 2019 to 2023, encompassing 665 observations. To test the hypotheses, multiple regression analysis was employed using panel data and the generalized least squares method. The findings of the study indicate that managerial ability has an inverse effect on accounting conservatism; in other words, capable managers are less inclined to adopt conservative accounting practices. Furthermore, institutional shareholders play a positive moderating role, with their oversight increasing the level of accounting conservatism. In contrast, board independence has a negative moderating effect, preventing excessive conservatism in firms led by capable managers and contributing to the transparency of financial reporting.

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