The Moderating Effect of Voluntary Disclosure on the Relationship Between Quality of Accruals and Information Asymmetry

This study examines the intermediary impact of discretionary disclosures on the relationship between the quality of accruals and information asymmetry. Our sample includes 149 firms listed on Tehran Stock Exchange during the period 2007-2013. We tested our hypotheses using multivariate regression analysis. We also measured information asymmetry as the bid-ask spread and the quality of accruals using modified Jones model (1995) and the model introduced by Cothari (2005). Our results revealed a negative and significant relationship between the quality of accruals and information asymmetry, indicating the lower the quality of accruals, the higher the information asymmetry. Also, our other findings show that the level of discretionary disclosures modifies the observed relationship between the quality of accruals and information asymmetry. More specifically, an increase in the level of discretionary disclosures will lead to decrease in information asymmetry, as well as mitigating the relationship between the quality of accruals and information asymmetry.