The Influence Of Accounting Conservatism On The Debt Cost And Efficiency Of Investment In Companies

Conservatism is one of the most important characteristics of high quality accounting information. Conservative accounting information can coordinate of the contract for the parties to a conflict of interest, and can effectively reduce the agency cost of the contracting parties, thus it contributes to protect the benefits of investors and improve the value of enterprises. Since conservatism is critical in accounting measurement and financial reporting, it will certainly influence the economic decisions of users of financial statements and thus change debt cost and efficiency of investment in a company. Foreign scholars have found that product market competition relates to conservatism, while there is almost no domestic research in this area. This thesis aims to research the economic consequences of accounting conservatism in Chinese A-share listed manufacturing companies at the perspective of competition, also proposes some supports on firms’choosing accounting policies and governments’establishing regulations as well as improving supervision.Using the extension of Basu model, this paper analyzes the sample of Chinese A-share listed manufacturing firms during the2008-2010periods through statistical way and hypothesis tests. It researches the influences of product market competition on conservatism. On this basis, using C_score as alternative variable of conservatism, we test whether competition affect the role of conservatism in debt cost and the efficiency of investment in a company. Also some improvements have been put forward on improving accounting conservatism and the financial information quality.The empirical conclusions can be arrived as followed:(1)Product market competition contributes to a firm’s demand for accounting conservatism.(2) Firms with more conservative accounting obtain funds at a lower cost, and when confronted with more intense competition, conservative decrease debt cost more greatly.(3)Conservatism can inhibit the excessive investment of enterprises and improve the insufficient investment, thereby improves the efficiency of investment. And the more severely the competition is, more effective conservatism will be.