Research On Influence Of Corporate Governance On Earnings Conservatism

The quality of accounting information is always a problem which troubles governments. The financial scandals of listed companies frequently exposed since the establishment of the China’s securities market. The quality of accounting information is not optimistic. As an important aspect of measuring the quality of accounting information, earnings conservatism has become one of the current focuses of in the field of accounting. It seems that there are countless links between earnings conservatism and the corporate governance:On one hand, the basis of earning conservatism, which called "principal-agent theory", is also the basis of corporate governance. On the other hand, corporate governance is an institutional arrangement which norms the relations between the powers and responsibilities of stakeholders interests. The perfection degree of corporate governance affect the company’s accounting earnings quality greatly.Financial reporting information is an important document reflecting the financial position and operating results, all parties in the corporation complete the contracting process by the information provided by the financial reporting. By delaying confirming the good news and disclosing the bad news. Prudent accounting information can reduce the degree of information asymmetry and agency costs and protect the interest of stakeholders. Good corporate governance structure can contribute to the improvement of earnings conservatism, thus improving the quality of financial information and protect the interests of the contracting parties to promote the benign development of the company. This article seize the close relationship between corporate governance and earnings conservatism, study corporate governance from the perspective of earnings conservatism, does a thorough research on how the various elements of corporate governance affect earnings conservatism.This article first review the existing research documents on the influence of corporate governance on earnings conservatism, and describe the lack of existing empirical research and development trends. Then summarize and conclude the theoretical basis of the correlation of corporate governance and earnings conservatism, put emphasis to analysis the influence mechanism of corporate governance on earnings conservatism form the two aspects of the principal-agent theory and the stakeholder theory. Then, does theoretical analysis on how the elements of corporate governance affect the earnings conservatism and puts forward the research hypothesis, build regression model which links the elements of corporate governance and earnings conservatism and do years regression and overall regression analysis, thus clear the direction and degree of influence of how corporate governance elements affect the earnings conservatism. Finally, make policy recommendations on how to improve the corporate governance structure and improve earnings conservatism on the basis of the conclusion and empirical test results.The main contribution of this paper:First, we further analysis the influence of corporate governance on earnings conservatism form the principal-agent theory and stakeholder theory, combined with the influence factors of earnings conservatism which expand the theory perspective of corporate governance on earnings conservatism. Second, there are many empirical researches on the influence of corporate governance on earnings conservatism, but most researches are based on the board characteristics and equity structure characteristics, we lack the research on executive incentive and supervisory committee characteristics. In this paper, we overcome the above defects and make innovation on the research model, we use the earnings measure model proposed by Khan and Watts (2007) and the data after the implementation of the new accounting principle, by doing years regression and overall regression analysis, clear the role of each elements in achieving the goal of improving the earnings conservatism.