Research On The Relationship Between Accounting Conservatism,Internal Control Defects And Capital Cost

Capital is the key to the survival and development of enterprises,the price paid by the enterprise from the creditor and the equity finance has a direct impact on the capital cost of the enterprise.As the core content and the important foundation of the modern financial management theory,the capital cost has a great influence on the enterprise's financial decision and enterprise's value.In 1958,the article: the cost of capital,corporate finance and investment theory of American famous economist Miller and Modigliani,Make a clear explanation of the effects of corporate capital structure,capital cost and financing activities on enterprise value,opened the activities related to enterprise financing and related theories of the research.Cost of capital is pay for the price of the enterprise financing,the companies hope to achieve lower equity and debt financing cost,to improve the enterprise's profit and value creation,Capital cost is also the minimum rate of return required by the investment,only the return of the investment higher than the cost of financing,that the investment create value for the enterprise,so the cost of capital become enterprise important decision criteria indicators in investment and financing decisions,as to be the important basis used to judge for the financing decision and investment project feasibility,occupy the important position in the enterprise financial decision.At the same time,whether the enterprise value evaluation method free cash flow method or EVA,when the lowest of capital cost,the enterprise whole value is biggest,the cost of capital is driven and an important factor affecting the value of the enterprise,the reasonable control of the capital cost of the enterprise is important ways and means to improve the enterprise value.Especially state-owned assets supervision and Administration Commission of the State Council on 10 January 2014 issued(2014)Document No.8,“Guiding opinions on strengthening the value management of central enterprises with the increase of economic value add”,the notice emphasized again that the central enterprises further deepening of the assessment methods of EVA,to value maximization as the goal,based on the focus on the concept of EVA management,optimize the allocation of resources,through the diagnostic value and performance incentives and effective monitoring,to whole process management of the factors that affect the enterprise value creation,to improve the management level of enterprise value.And the capital cost is an important driving factor of enterprise EVA;we should effectively reduce the capital cost,raise value creation level of EVA,which has been paid more attention by the central enterprises.In view of the importance of cost of capital in the corporate financial decisions and value create;explore the factors that influence the capital cost of the enterprises and its mechanism of action,through the analysis of these factors,take effective methods control the capital cost of the enterprise,improve the efficiency of corporate finance and investment,increase enterprise's value creation and EVA level is particularly important.And accounting conservatism as one of the important characteristics of accounting information quality,the basic idea is to under estimate the benefit and overestimate losses in accounting,and reaction to bad news are faster than response to good news,the transmission of information of the conservative accounting policy,namely the loss of timely confirmation,is often concerned and padded attention to by all stakeholders in the enterprise,then take appropriate decisions and actions,thereby affecting the company's cost of debt financing and equity financing cost.So to discuss the relationship between accounting conservatism and the cost of debt financing and equity financing cost,analysis the micro factors and mechanism of these relationships,and explore the path to reduce financing cost through accounting conservatism,is important to enterprise making reasonable financial decision,and improving the financing efficiency and firm value.Therefore,basis on the review and analysis of the stakeholder theory,principal agent theory,asymmetric information theory,incomplete contract theory,signal transmission theory,higher order theory and similarity attraction theory,after combing the literature on the relationship between accounting conservatism and the cost of capital and influencing factors of accounting conservatism,construct the logic model of accounting conservatism,internal control defects and the cost of capital,the moderating role of top management team on the relationship between accounting conservatism and capital cost.Mainly uses the EXCEL2007,SPSS19.0 and EVIEWS3.1 software to make the statistical description,the correlation analysis,factor analysis and principal component analysis by the sample data,carries on the multiple regression analysis to the logical relation model.From internal control defects and TMT micro level perspective to find the factors and mechanism of influencing the relationship between accounting conservatism and the cost of capital,through theoretical analysis and empirical research,this paper draws conclusions as follows:(1)From the perspective of internal control defects,analysis the relationship between accounting conservatism,internal control defects and debt financing cost.Due to timely confirm the loss,based on the signal transmission principle,the accounting conservatism can effectively reduce the creditors' risk,and accounting conservatism can also limits the opportunistic behavior of manage,reduce earnings volatility,and to decrease the risk of creditors,reduce the cost of debt financing of enterprises,so namely accounting conservatism and the cost of debt financing is negative correlation.And the defect of internal control,reducing the financial information quality of the company,increases the enterprise's operation and management risk,leading to an increase in loan creditor risk,that is,defect of internal control is positively related to corporate debt financing cost.Once companies to disclose the internal control deficiencies,it will increase the requirements on the conservatism accounting by creditors,making the relationship between accounting conservatism and the cost of debt financing was particularly apparent in the sample of internal control defects,internal control deficiencies play a regulatory role in accounting conservatism and debt financing costs,significantly enhanced the negative relationship between accounting conservatism and debt costs.(2)From the perspective of internal control defects,analyzed the relationship between accounting conservatism,internal control defects and the equity financing cost,Conservative accounting policies for bad news timely disclosure and inhibition of company earnings management,is conducive to investors find bankruptcy risk,management risk,crisis,and all kinds of risk timely,reducing the information asymmetry,to avoid the mistakes in investment decision,thereby reducing the risk compensation of equity investment,namely accounting conservatism and the cost of equity financing is negatively correlated.When there are defects in the company's internal control,the likelihood of financial statements misstatement increase,enterprise management manipulation and fraud behavior probability increases,increase the risk of investment,the requirements of return compensation will increase,that is the internal control defects and the cost of equity financing is positively related,When the company has the defects of internal control,the cost of equity financing increase,and the internal control defects play a moderating effect on the relationship of accounting conservatism and equity cost financing,the negative relationship of accounting conservatism and equity cost is more obvious in higher quality internal control of the company.(3)From the perspective of the top management team,analysis the mo moderating effect of average structural characteristics,the heterogeneity of structural characteristics,the CEO power of TMT on the relationship accounting conservatism between debt financing costs.And five variables of average age,average educational level,male ratio,team age heterogeneity,education level heterogeneity of TMT have moderating effect on the relationship between accounting conservatism and the cost of debt,specifically average age,average educational level,male ratio weakening the negative relationship between accounting conservatism and the cost of debt,age heterogeneity,education level heterogeneity enhances the negative relationship between accounting conservatism and the cost of debt.Average tenure and tenure heterogeneity did not pass significant test to the relationship between accounting conservatism and the cost of debt,it does not play a role in regulating,to see the important role of the construction of heterogeneity team on financial decisions.Integrated results from the analysis of the structure of power,expert power,ownership power and reputation power four dimensions of eight principal component variables measure CEO power and found that CEO power has a positive regulatory role on the relationship between accounting conservatism and the cost of debt.(4)From the perspective of the top management team,analyzes the regulatory role of TMT heterogeneity structure characteristics on the relationship between accounting conservatism and equity financing cost,Results show that the age heterogeneity and education level heterogeneity weakens the negative relationship between accounting conservatism and the cost of equity,and tenure heterogeneity enhances the negative relationship between accounting conservatism and the cost of equity.The innovation points of this paper mainly include the following aspects:(1)Making the internal control defects into the model of the relationship between accounting conservatism and the cost of debt and equity cost,analysis the effect of internal control defects on capital cost,analysis the moderating role of internal control deficiencies on the relationship between accounting conservatism and the cost of capital,which is playing the role of substitute or complementary.Validation the economic consequences of internal control defects,at the same time further broaden the research perspective of accounting conservatism,Analysis the influence of the internal factors and improvement of the internal control system on accounting policy choice and the financing behavior,supple and deepen the research field of capital cost.(2)Making the average structure characteristics and heterogeneity characteristics into the model of the relationship between accounting conservatism and the cost of debt and equity cost,analysis the regulation role of TMT differences on the relationship between accounting conservatism and the cost of capital,for the first time,analysis the accounting conservatism role and mechanism in capital cost from Human factors.Do the research of accounting policy choice and financing behavior from the perspective of TMT,extending the research category of the higher-order theory to financial decision and the quality of accounting information area,broaden the perspective and depth of the research,and enrich the study of high order theory,there is a certain theory value and innovation.(3)From the perspective of CEO enterprise micro management,interpreted the important role of CEO in enterprise strategic decision.Making the CEO power into the model of the relationship between accounting conservatism and the cost of debt,and analyzed the moderating role of CEO power in the relationship between accounting conservatism and capital cost.Broaden the content of CEO research category,comprehensively mining the improvement of enterprise accounting conservatism,and the countermeasures and suggestions on reducing the financing cost and influencing factors.