Study On The Contract Motivation And Market Reaction Of Accounting Policy Choice

Accounting policy choice is one of the focus fields in positive accounting theory research. With the contract theory, the foreign accounting scholars have made lots of fruitful studies in it, which are mostly based on three hypothesizes, Political Cost Hypothesis, Debt Contract Hypothesis and Pay Contract Hypothesis. Comparatively, the study on accounting policy choice in our country began lately with unfruitful studies.The new accounting standards put into effect on Jan.1, 2007 introduced fair value accounting extensively. But fair value accounting is not used standardizedly in the accounting standards and accounting work. Unclear classification of financial assets leads to choosing accounting subject when a company invests a kind of financial assets. In this paper, with the methods of theoretic analysis and empirical testing, a series of studies on contracting incentives and market reaction of accounting policy choice have been made.There are two parts in this paper. The first part includes chapter 2 and chapter 3. We analyze the reasons come into being and influence on companies based on the classification of financial assets in the new accounting standards in chapter 2. In chapter 3, we summarize the relevant studies on contract motivation and market reaction of accounting policy choice. The analysis in this part is the basis of the empirical testing in part 2.The second part is chapter 4 and chapter 5 and it is the core of this paper. In chapter 4, with the listed companies classifying a kind of financial assets into tradable financial assets and available-for-sale financial assets in 2007 as our research sample, we use independent sample t testing and Logistic regression and find that the Pay Contract Hypothesis and Political Cost Hypothesis are validated, but the Debt Contract Hypothesis is negative. In chapter 5, with the same sample as those in chapter 4, we study the market reaction using Ohlson price model and find that tradable financial assets has incremental information over and above their historical cost but available-for-sale not. There are differences between their market reaction.