An Empirical Research Of Accounting Conservatism And Non-efficient Investment In China’s Public Companies

Public companies’ investment decisions are not fully effective due to the existence of agency problems between shareholders and management and asymmetric information between shareholders and creditors, which is harmful to the enterprise value. Since accounting conservatism can prompt public companies to adopt conservative accounting policies, the investment losses can be recognized timely.. Besides, under-investment can also be relieved through reducing lending cost. However, in recent years, some researchers in accounting field has began to doubt the positive role of accounting conservatism, they claims that accounting conservatism has underestimated the net assets of the enterprise, which leads investors to give up some good projects, thus increasing the occurrence of under-investment. Therefore, this paper is about to verify what influence can accounting conservatism make to non-efficient investment.The results show that from2007to2010, accounting conservatism exists in China’s public companies and can somewhat significantly help to improve investment efficiency, further more, when dividing the non-efficient investment into over-investment and under-investment, it indicates that accounting conservatism can help to control the both, but only the under-investment group is significant. I also examined that investment utility on non-state-owned public companies are stronger than the state-owned but not significant. The results of controlled variables show that the power of managers in China’s capital market is too big, which may be the reason that accounting conservatism can not reduce over-investment significantly.