The Study Of Accounting Policy Choice For Listed Companies From The Perspective Of Contract Theory

The choice of accounting policies affects the quality of accounting information and it has some economic consequences. The data of corporate earnings has a special meaning for management staff. This data is the results of a set of accounting procedures, given a company's cash flow, accounting procedures in different combinations can give managers the flexibility to report different profit within a certain scope, and this is the process of accounting policy choice. At present, the definition of accounting policy choice in accounting profession is diverse, but basically the same general meaning, namely, corporate accounting policy choice refers to the purposeful selection behavior of regulatory authorities in the choice of accounting principles, recognition and measurement methods under certain circumstances. Accounting standards and the system itself as well as the incompleteness of contracts provide the foundation and space for the listed companies to choose accounting policies in accordance with their self-interest. Accounting policy research is an important research topic in the field of accounting, and its in-depth study has a certain role in the development of accounting theory and practice, meanwhile it can also regulate the behavior of all stakeholders in the capital markets, and improve or solve some of the problems in the accounting standard-setting.The effective functioning of the market is inseparable from rules. Contracts exist between the parties are a protection and balance in achieving the objectives of their respective rights and interests. China's 2006 accounting standard system, gives enterprises the right of choosing accounting policies. At present, the articles about accounting policy choice in China are mainly research-based, and their content are mostly limited to aspects of the theory and game analysis, even the empirical articles, are basically research on a particular accounting policy. This paper is based on the contract theory and analyzes the listed companies'behavior in choosing accounting policy after the enactment of China's accounting guidelines, and uses the empirical evidence of relevant data on listed companies to find out the root of the problem in accounting policy choice in terms of the contract motivation, so as to get a more comprehensive reflect on the effects of the implementation of accounting standards and to provide relevant recommendations to standardize the behavior of accounting policy choices in listed companies. The structure of this article is divided into several parts as follows:The first part is the introduction, including research background and significance both in and at abroad as well as the research routes and methods. The second part is an overview of the accounting policy choice,it introduces the definition of accounting policy choice, classification and so on. The third part is the contract theory and accounting policy choices, it discusses the motivation and effects of accounting policy choice from the perspective of contract theory. Among them, highlighting in the bonus plans, debt covenants and political costs hypothesis in the positive accounting theory. The fourth part is the empirical research of this article, and the paper finally uses the 2007 and 2008 annual reports data of listed companies to carry out a multiple regression analysis, according to the relationships between enterprise and the contractual parties to examine the motives of accounting policy choice. The results showed that: compensation contract, inventory ratio has a significant positive correlation with discretionary accruals, while asset-liability ratio and the firm size has no significant effect on the discretionary accruals, the symbol of the size for accounting firms is contrary to the prediction before, and the impact are not significant. The fifth part is to analyze the results for the study and to draw relevant recommendations including: (1)to strengthen corporate governance structure and improve the incentive mechanism; (2) giving the treaty parties the right of suggestion and supervision in choosing accounting policies; (3)to strengthen the effect of audit supervision; (4)to further improve the construction of accounting standards and operation guidance; (5)to reinforce the supervision of both department and society.The main contribution of this paper is that it analyzes the companies'behavior of accounting policy choice from the perspective of contract theory by using the empirical test methods. On one hand, it reflects the imperfections in the implementation of accounting standards; on the other hand, makes a detailed analysis on the three assumptions in the positive accounting theory in our country. The deficiency of this paper is the limited sample data is likely to decline the conclusion's persuasion of this study, so it needs an in-depth research and needs for further increase sample size as the changes in the environment and development of capital market, moreover, gives more comprehensive considerations of various factors on the empirical test in the accounting policy choice, and then revise and improve the empirical model are necessary.