The Study On The Relationship Between Fair Value And Accounting Conservatism

Fair value is the amount used by the trading parties who are familiar with the situation in the fair transaction of the assets and liabilities. It is a new type of measurement. Compared to the historical cost, fair value is able to provide accounting information which is more comprehensive and relevant, so it is favoured by domestic and international standard setting organizations, and has been widely used. From an academic point of view, so far, fair value has always been the controversial object to the accounting academia, especially after the outbreak of the U.S. subprime mortgage crisis in2008.The application of fair value in our country is relatively late. It got its real application in practice in1998. During the next ten years, its application process was not successfully. It has gone through three stages, they are the introduced stage, avoiding stage and reintroduced stage. Such a development course of the fair value creates good opportunities for the further research, and becomes an important entry point of this paper.Accounting conservatism is one of basic accounting principles. It has gone a long history and is said to be the oldest and most common accounting valuation principle. It’s the same with the fair value, acounting conservatism is also the product of the uncertain economic environment. But unlike the fair value, in the face of the uncertainty in the practice, accounting conservatism requires accountants that they should either overstate assets and income, or underestimate liabilities and cost. That is to say, the confirming and reflecting of the accounting information for accounting conservatism is not symmetrical. It’s also because of the asymmetry, accounting conservatism becomes one of the hot topic of the accounting academics.The outbreaking of financial crisis in2008put the fair value into "judgement" immediately.Bankers and economic analysts blamed that the fair value measurement played an important role in the financial crisis. And because it’s easy to overestimate the value of the firm, the use of the fair value makes the accounting information lack of conservatism. The research that whether fair value in accordance with the accounting conservatism or not dated from1960s, this style of research is continued, but still does not form a unified opinion.The purpose of this paper is to analysis that whether there is accounting conservatism among the listed companies in china or not, and what’s the relationship between the fair value and accounting conservatism. This research uses a-share listed company datas, and is based on the model of Basu (1997).This research includes the following several parts:The first chapter is introduction. This part mainly from four aspects:the first aspect is describing the article’s background and significnce; the second aspect is analysising this paper’s research idea and methods; the third aspect is to illustrate the structure of this paper; the last aspect is to introduce this paper’s innovations.The second chapter is literature review, which reviews the relevant research fruits in the fair value, the accounting conservatism, and the relationship of them.Through the above aspects of the review, we can know the present situation and development trend of the research.The third chapter is the theoretical analysis part for the fair value and accounting conservatism. First of all, I analyzed the definition, development and ecomomic consequences the fair value; Second, I descriped the definition, influence factors and economic consequences of the accounting conservatism; Then, I introduced the uncertainty, the common reason of both the fair value measurement and accounting conservatism.The fourth chapter is the relationship theoretical analysis for the fair value measurement and accounting conservatism. In this part, I analyzed the relationship between the fair value measurement and accounting conservatism from the theory point. The relationship includes the Contradiction of them and their consistency.Chapter5is the study design part, and this chapter is divided into three parts:The first part is for hypotheses:hypothesis1:there is accounting conservatism in our country’s listed companies; hypothesis2:In different stages that the application of fair value, the accounting conservatism presents different characteristics; hypothesis3:the use of the fair value will make the accounting conservatism decline. The second part is for research model establishing. This paper mainly used Basu’s model and the deformation of this model. The third part is for study data selecting. This paper used market data of China’s a-share listed companies from1998to2010, the datas was selected from the CSMAR database, and with the application of Excel2007, Spass17and StatalO statistical software, I finished the data selection.The sixth chapter is the part for the empirical result analysis. In this part, I used the model and the datas to test the three hypotheses above, and used the sensitivity test to make sure the result is reliable.The seventh chapter is for research conclusion, relevent suggestions and study limitations. According to the theorical and empirical studies, this paper concluded the following conclusions:(1). there is accounting conservatism in the listed companies in China.(2).In different stages that application of the fair value, the accounting conservatism present different characteristics:In the introducing stage (1998-2000), the conservatism is not obvious; in the avoid stage (2001-2006), the conservatism performance extreme significant except the result in2006; and in the reintroducing stage (2007-2010), compared with the result of the avoid stage, the accounting conservatism is significantly decreased. Besides, through the empirical analysis, I noticed that fair value will not necessarily cause the accounting conservatism of the listed companies decline. Based on the conclusions, this paper presented some suggestions which is suitable for the actual situation of china’s capital market.The each reaserches for the fair value and conservatism is a great many, but the reaserch about the relationship of the two is less. And during the existing literatures about the relationship of the fair value and conservatism, some have only the theory research but is lack of empirical basis, and some have only the empirical analysis but without theory support. Followed are the innovation points of this paper:(1) The innovation of the research field, In the domestic and international academic study in the past, the separate research for the fair value or accounting conservatism has been many, but the research combined them together is still limited. In this context, I discussed the relationship between the two issues by using the datas of the a-share listed companies in our country and the modles of Basu(1997). (2) The innovation of research thinking. The application of fair value in our country has experienced three violent stages since from1998. Such a development course creates a good opportunity for the further research of fair value, and it becomes an important breakthrough point of this paper. In this paper, I concluded that the accounting conservatism of the three different stages the fair value experienced will present differently. The purpose getting such a result is to make the relationship research for fair value and the accounting conservatism more persuasive.(3) The innovation of the study method, I used the study method combined with normative and empirical research. This method both avioded the defects that the pure normative research has no data support, and the defects of the pure empirical research without theory support. It will help us get more accurate, rigorous and scientific research conclusion.(4) Update the research data, I chosen the a-share listed company datas from1998to2010as the sample. The data is updated to be the newest and more effective. It is comprehensive enough to get the conclusions which are more accurate, representative and persuasive.