A Study Of Effects From Managers' Choice Of Accounting Policies Based On The Outlook Of Managerial Entrenchment

Corporate finance and accounting under the circumstance of capital market have evolved into a researching field,which features vigor and challenge as well as inter-penetration and inter-overlap of multi-disciplines.In this area,behavior on accounting policy choice is acknowledged as a significant topic in theory and practice,triggering high attention from academia and generating academic results.The current literature on accounting policy focuses on identification of manipulation behaviors and internal and external factors for accounting choices,lacking of dealing with choice makers(managers).Theories of both principal-agency and corporate behavior state that satisfaction in stead of profit maximization is the objective to be sought by the management in an enterprise as executives must be faced with outside crises such as outside merger and acquisition and inside crises such as unemployment and demotion.If these crises cause considerable losses in on-the-job consumption,individual earnings from transferring resources and career reputation,corresponding management entrenchment would occur in operations.Consequently,a primary concern for executives is over how to diminish non-diversifiable employment risks for maintaining stability in their posts.While managers depend on actual conditions for making a decision concerning some specific accounting strategies and this may create an opportunity for them to keep to their original posts so that behavior related to decision-making of accountancy,no longer acting as a means of objective reflection of the economic essence of a company has drifted into an instrument to be subjectively employed for accomplishing personal objectives by management.Considering this,this paper is dedicated to exploring managers' option for accounting policies and the optimistic approach to making choice in this regard,from the perspective of management defense.Thus,the study will extend the current literature by providing deep insights into protection in management and selection of accounting policies and meanwhile furnish worthy references for promoting business of listed corporations in the context of full circulation and implementing of new accounting rules.On the basis of systemizing and referring to related literature,the study identifies contents and definitions associated with accounting policy,elaborates its factors,economic aftermath and the path therein,and overall features on accounting polices under fresh rules of accountancy.Upon this footing,the study,through the evolution logic of modern business theories,deals with strength from the management tier as a major decider in decision-making,to unveil managers' motives of realizing personal goals via picking policy by virtue of probing into acts regarding their accounting policy selection.Further,the study addresses executive motives in choosing accounting policies from the perspective of management entrenchment and makes comparison of enterprises of dissimilar property rights over both policy options and behaviors thereof.Then,this study,based on accounting confirmation and measurement,examines room,where executives make management safeguard by using of policy selection in the case of new rules.Finally,this paper makes an empirical analysis of accounting policy options from the angle of management protection by executives among companies with differing property rights through correlation statistics,picking two accounting policies in financial assets classification and long-term assets devalue,and replying on both accounting policy choice and management shield theories,so as to test differences and similarities in policy-choosing by firms of differential property rights and motives behind options.Furthermore,empirical results are deeply investigated,whereby to put forward countermeasures.So,this study is a theoretic extension of the existing literature on accounting policy choice by executives and makes a contribution to regulating deeds of selecting accounting policies,representing a certain practical value in safeguarding accounting information objective and fair.Relative to other related studies,this paper makes innovations as following:1)Probes into managers' choosing behavior of accounting policy.By virtue of management entrenchment theory,much existing literature usually explicates financial behaviors and seldom accounting deeds for companies.The study fills this gap through dealing with impacts of management protection motive on executives' picking accounting policies,since the right of accounting policy option is on hold by management as a residual right of control.Additionally,this study opens up a wider area in the applied research of management entrenchment through adding to the current study on defense hypothesis.2)Empirically tests the effects of management(based on entrenchment motive)on financial assets classification and assets depreciation accrual behaviors.Current study documents resort to economic dimensions and surplus management for addressing questions related to financial asset classification and accrual acts of asset devaluation preparation and is rarely reliant on managers' own attributes and management defense.Unlike most literature,this paper deals with financial asset classification and accrual acts of asset devaluation preparation from theviewpoint of management defense,thus enriching the research domain on these issues and furnishing a fresh outlook concerning enterprise behaviors in the option for accounting policies.3)Tests for differences of management behaviors of option for accounting policy in the case of firms of distinctive property rights.Dividing sampling enterprises into state-owned and private-listed,this paper aims to probe into acts of managers choosing accounting policy in companies with distinctive rights of property and conducts an empirical test for discrepancy between the two types of enterprises in effects of management entrenchment on policy choice.Comparatively,state-run firms outperform private companies in the degree of management protection,and,in picking the policy of accounting for financial assets classification are weighted onto the function of “profit pool”,which can have marketable,financial assets with more room for surplus adjustment.