Firms Influence, Accounting Conservatism And Efficiency Of Resource Allocation

The government and the firm are the two most important entities in the modern economic society. Their mutual relationship affects not only the government and the firms themselves, but also the social economic efficiency. Previous studies have primarily focused on the government's intervention and impact on firms. However, few studies have been carried out on the economic consequences from interaction of government and enterprises, and the influence on government by firms. More facts in transitional countries reveal that the firm's influence on the government will not only affect the efficiency of resource allocation, also affect the pace and direction of their reforms, even their success of transition. While much empirical research has been done on accounting conservatism, there are little direct empirical evidence of economic consequences for accounting conservatism, especially in China. China is an emerging and transitional country, in which more attentions are paid to the accounting conservatism in the reforming process of accounting system. So what is the relationship between the firms influence on government and the efficiency of resource allocation, and what is the relationship between accounting conservatism and the efficiency of resource allocation under the China's system?Based on the analysis of the system of the Chinese accounting reforming and administrative power, from the perspective of financing and investment, we tested the relationship between firms influence on government, accounting conservatism and resource allocation efficiency, and the effect by the marketalization with the data of Chinese listed companies in 2007-2009. In process of the research, we tested the reliability of the measure of accounting conservatism using 2004-2009 chinese listed companies data because there is not a common acceptted measure of comservatism, and refer to the theory of interdependence in international political relations subject to construct a measure of firms influence on the base of understanding of the chinese system. The results are as follows:1. Accounting conservatism overall helps to enhance the efficiency of resource allocation. Concretely speaking, on one hand, it can effectively improve the financing efficiency of firm, including debt financing efficiency and equity financing efficiency. On the other, it can reduce the inefficiency of overinvestment, and exacerbate the inefficiency of underinvestment.we think accounting conservatism helps to enhance the efficiency of resource allocation on the whole with the following reasons:(1) The loss of overinvestment is severer than the loss of underinvestment because of resource scarcity; (2) From the perspective of the source of decision information, the founds providers as the external related party depend mainly on the public financial accounting information to make decision; while the managers as internal personnel with more available private information can weaken the inefficiency of underinvestment greatly.2. Firms influence has dual influences on the allocation of resources. Firstly, Firms can use their influence directly by the administrative intervention to affect the firm financing efficiency and investment efficiency. Secondly, firms influence can affect the efficiency of resource allocation by weakening the role of conversatism information in the process of decision-making.3. Marketization reform can weaken the adverse effect on resource allocoation from the firms influence, because:(1) Marketization can reduce government intervention; and (2) Marketization can strengthen the role of accounting information in the process of decision-making.4. The firm-year measure of conservatism development by Knhy & Watts (2009) are more reliability as a measure of accounting conservatism in china in our study.Based on the above results of study, we recommend some constructive suggestion in this thesis:(1) study in depth on the economic consequences of accounting conservatism, and develop a set of accounting standards suitable for china in the process of accounting standard international harmonization; (2) change governmental functions, strictly limiting the scope of government intervention and its approach to reduce the impact of the government from enterprise; (3) Improving the transparency of government public affairs, improving the positive role of the firms influence and reducing the negative effects of the firms influence.