The Impact Study On Accounting Conservatism To The Investment Effciency Of Listed Companies

Accounting Conservatism, which is one of the requirements to ensure high quality accounting information, has a long-history application and a far-reaching impact. It helps to recognize loss timely and has been widely recognized as an effective risk control mechanism; especially in recent past that economic crisis occurred frequently.Investment efficiency is the key factor for the survival and long-lasting develop ment of an enterprise. Our domestic investment amount occupies a very important ra te in GDP. but our overall investment efficiency has been constantly lower than developed countries. Studies regarding the impact of accounting Conservatism provide references for capital investment decisions in practice and play a positive role in the improvement of the enterprise investment efficiency.This paper uses the Chinese listed companies" A shares data from2006to2010. all finance/insurance companies and IPOs are excluded from the sample. This study mainly consists of three steps:1, Based on K&W model, this study adds the factor of Asset Impairment Reserve and measures a Accounting Conservatism level for each company in different year;2. Making use of Richardson model to estimate the optimal investment scale for each company, and then allocating it with positive (negative) residual value to either the underinvestment (overinvestment) group;3, Analyzing the impact of accounting conservatism to overinvestment/under-investment group. The result shows that accounting conservatism is negatively related with overinvestment and positively related with underinvestment. This indicates that accounting conservatism could control overinvestment, but on the other hand, worse underinvestment. At the end, a negative correlation between accounting conservatism and inefficient investment has been found. This result suggests that accounting conservatism could restrain inefficient investment effectively.