Research On Accounting Conservatism Control The Listed Companies' Over-investment Behavior

This paper investigated the connection between Accounting conservatism and over-investment behavior of Listed companies form the angle of Accounting conservatism. By exploring their connection, the paper used an empirical research method and tested if there was a significant correlation between Accounting conservatism and over-investment behavior of Listed companies. we wondered if in those Listed companies that with high Accounting Conservatism level, the Accounting Conservatism would have an intensified control over the over-investment behavior. on the contrary, in those Listed companies that with low Accounting Conservatism level, the Accounting Conservatism would just have little effection on the over-investment behavior.With these doubts, the paper used all industries enterprises but the financial ones of the China A-share Listed companies'data from 2002 to 2006 as sample data.In the first step we used the Basu (1997) model and the earnings stability model to investigate the existence of the Accounting conservatism, then used the Accruals profit model to measure the Accounting conservatism of the Listed companies. The empirical results showed that in general the Listed companies in our study displayed high level of Accounting conservatism.After get these conclusions, we adopted the Richardson (2006) model to measure the over-investment level and then according to our research needs, we developed the Basu(1997) model and constructed the model 4.12 and model 4.15.By comparing the results of the empirical test of these two model, we not only could reached the conclusion that the Accounting conservatism itself control over the over-investment behavior but could also got that when the Listed companies implemented conservative Accounting policies, the change of correlation between the over-investment and its other affecting factors.The research results showed that there was indeed connection between the Accounting conservatism and over-investment behavior of Listed companies and through did further study we found that by improving the level of Accounting conservatism of Listed companies could obviously reduced the occurrence of over-investment behavior. This paper provided a new path of corporate governance for Chinese Listed companies and theoretical support for the application of the Accounting Conservatism principle.