Accounting conservatism and money laundering risk

Abstract

Purpose

This paper aims to investigate the relationship between accounting conservatism and money laundering risk. For this goal, the authors construct an index for measuring money laundering risk at the firm level for Iranian listed firms in the Tehran Stock Exchange.

Design/methodology/approach

In this study, the authors use a sample of 924 firm-year observation of Iranian listed firms for the period of 2012-2017. The authors use three approaches for testing our prediction that more conservative firms are less likely to be involved in money laundering activities. A balanced panel regression model has been used for testing the prediction.

Findings

The paper results suggest that there is a negative relationship between conditional conservatism and money laundering risk. Furthermore, the authors have shown that the result is robust to controlling for different firm characteristics variables and also industry specific effects.

Research limitations/implications

Further research in other financial markets is needed to confirm the results generally.

Practical implications

The evidence in this paper indicates that the degree of accounting conservatism contains important information which can be used by the investors and regulators for managing and controlling the risk of money laundering in the firms.

Originality/value

By constructing a money laundering risk measure at the firm level for the first time, the authors provide evidence on relationship between conservatism and money laundering risk in Iran.

Citation

Bolgorian, M. and Mayeli, A. (2020), "Accounting conservatism and money laundering risk", Accounting Research Journal, Vol. 33 No. 2, pp. 343-361. https://doi.org/10.1108/ARJ-12-2018-0221