An Empirical Test Of Accounting Conservatism And Residual Income Valuation Model

Accounting conservatism's influence on Accounting Standards and accounting practice has been long and significant. This paper develops a model that can simultaneously test conditional conservation and unconditional conservatism, and then we use annual Finacial Statements on listed companies to examine the model. In the context of the financial crisis to test the robustness of reporting not only of theoretical significance, but also has strong practical significance.In this paper, we add a dummy variable to reflecting the "good news" and "bad news" asymmetry to creat a new model. Using 2007, 2008, Shanghai Stock Exchange and the Shenzhen Stock Exchange for a total of 2,003 samples were tested. Besides of the overall test, we also make robust tests, include of sub-year, sub-exchange,sub-industry and sub-audit opinion samples.The main conclusion is as follows:First, the overall regression results show that book value of equity and residual income are significantly positively related to the price; the coefficient of book value of equity is greater than one, which means the undervaluation of equity, consistent with the unconditional conservatism; dummy variable capture the slope effects for the positive residual income sample and its coefficient is greater than one as well. Secondly, the robust test results showed:(1) apart from being issued an non-standard unqualified sub-sample there is no unconditional conservatism and the coefficient of dummy variable is not significantly, the other sub-samples confirmed the existence of two kinds of conservatism.