International Journal of Finance & Managerial Accounting

International Journal of Finance & Managerial Accounting

Explaining the Pattern for Measuring Companies' Environmental Uncertainty and Its Effect on the Volatility of the Qualitative Characteristics of Companies' Financial Information

Document Type : Original Article

Authors
sadegh yousefnezhad 1
Farzaneh Heidarpoor 2
1 PhD Student, Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran.
2 Professor, Department of Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran.
10.30495/ijfma.2024.77610.2120
Abstract
Environmental uncertainty refers to the unpredictability and complexity of factors surrounding the organization that can impact the firm's operations, strategy and results. Firms must deal with these uncertainties in order to make informed decisions and adapt effectively to changing circumstances. The main objective of this research is to explain a model for measuring corporate environmental uncertainty from the perspective of theoretical foundations and experimental research. To this end, the statistical method of principal component analysis is used to select a suitable criterion for each component of environmental uncertainty from several criteria and, in a next step, the degree of environmental uncertainty of each company is measured by weighting each component. Then, the effect of this variable on the volatility of the qualitative characteristics of the companies' financial information is tested. For this purpose, the data of 131 companies from 2012 to 2021 were analyzed and a multivariate regression analysis was used to test the research hypotheses. The results obtained show that environmental uncertainty affects the volatility of qualitative characteristics of companies' financial information, such as relevance and understandability. Environmental uncertainty poses challenges to any company in terms of lack of information and speed of information and limits its room for maneuver. Therefore, it is difficult to reconcile the relevance of financial information with the degree of environmental uncertainty in order to improve business performance. Furthermore, there is no significant relationship between environmental uncertainty and the volatility of reliability and comparability of financial information.
Keywords
environmental uncertainty
qualitative characteristics of financial information
fluctuating relevance
fluctuating reliability
fluctuating comparability
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