Analysis On Motivation And Influence Of Accounting Conservatism

Accounting conservatism is an important convention of financial report. It has even been recognized as one of accounting information quality characteristics in China. In other words, conservatism is playing an important role in practice as well as in drafting principles. However, the systematic research on conservatism has lasted for only about 10 years up till now while the history of accounting conservatism is longer than 100 years. Therefore, this article is to provide more empirical evidence for conservatism research and offer reference to company, government and investor as well.This article selected financial and market data of 1149 A-share companies in Chinese stock market from 1997 to 2006 as observations and adopted Basu Model to study 3 problems:1. The existence and change of accounting conservatism in China2. The motivation of accounting conservatism including principles, contracts, earnings level, etc.3. The influence of accounting conservatism on investorThe major empirical results in the article are listed as follows:1. Accounting conservatism is present and increasing flexuously in China.2. There are significant differences from industry to industry. Agricultural and manufacturing industries have comparatively higher conservatism levels and the changes of different industries in the past 10 years diversified largely.3. The effect of principles on conservatism is limited and unsustainable. Although the accounting principles issued in 1998 and 2001 influenced accounting information first, the conservatism level decreased again later.4. Earnings may influence accounting conservatism to some extent.5. Creditor prefers conservatism while shareholder is opposite and state-owned company usually has weak conservatism.6. Conservatism may cause investor to undervalue company so conservatism will not help investor to find real value of a company.The findings in this article may help in the following aspects:1. Company should improve its corporate governance to enhance accounting conservatism.2. Despite updating accounting principles, government should also build and strengthen supervision system.3. Since conservatism is established to prevent the interests of creditors, it may not help the investor with high risk preference.