The Impact of Financial Risks on Accounting Conservatism: An Applied Study on a Sample of Iraqi Banks Listed on the Iraq Stock Exchange
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Abstract
This research aims to explore the impact of financial risk on unconditional accounting conservatism in Iraqi banks. The study is applied to a sample of six banks listed on the Iraq Stock Exchange during the period from 2017 to 2021. A quantitative applied methodology was adopted, relying on published data in the financial reports of the sampled banks. The independent variable is financial risk, which was measured using indicators of liquidity, profitability, and leverage. The dependent variable, unconditional accounting conservatism, was measured using the Price-to-Book (P/B) ratio and the Accruals Quality measure. The research found a statistically significant relationship between financial risk—as indicated by the liquidity ratio—and unconditional accounting conservatism. However, the impact of financial risk as indicated by profitability and leverage on unconditional accounting conservatism was not statistically significant. Hypothesis testing also showed that unconditional accounting conservatism is not clearly present in the sampled banks, whether measured by the market-to-book value ratio or the accruals quality metric. This indicates that higher liquidity enhances the level of accounting conservatism. The study recommends strengthening accounting conservatism practices in Iraqi banks, given its role in mitigating the effects of financial risks, particularly those related to liquidity. It also recommends developing mechanisms for evaluating accounting risks in a way that enhances the quality of financial disclosure and the stability of financial performance in banks.
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