Government Relations、Legal Environment And Accounting Conservatism

Conservatism was included in the Accounting Standards for Enterprises for the first time in1992in our country, which means confirming its position from the system. Conservatism became a basic principle in the accounting recognition and measurement since then. From the development history of accounting conservatism, although it did play an important role in the practice of accounting, it has been criticized by academics and standard-setters always, for considering that conservatism violate the principle of timeliness and fair value and so can not be a good reaction on economic situation. Until the Enron, Worldcom and other major financial fraud explosion, theory and practice set off a big discussion about accounting conservatism. At present, the researches on the influence factors of accounting conservatism are mainly in firm characteristics and corporate governance. There is also part of study beginning to pay attention to the institutional environment, which mainly based on the comparison between the multinational, so it can not avoid the interference of geographical environment and humanistic factors and so on. A few researchers found that some firm characteristics factors explain ability is poorer in our country, thinking conservatism may be affected by the institutional factors. In conclusion, they laid a foundation for the topic of this paper. This article focuses on two important dimensions of the institutional environment, government relations and legal environment. We explore and verify whether they will impact on the company’s accounting conservatism? How the influence is? And due to company’s different political backgrounds, legal system’s influence on accounting conservatism will be different?To solve the above problems, this article attempts to conduct the research with the combination of theoretical and empirical approaches. First, through the theoretical analysis, we build a theory framework including government relations, legal environment and accounting conservatism. Then this paper selected the non-financial listed companies as the overall sample from the Shanghai Stock market and Shenzhen Stock market from2008to2011. After certain of data screening, the thesis ultimately obtained a451sample companies a total of1804observations as an effective sample. After the control towards the company’s size, financial leverage, industry and the year factors, through the establishment of a multiple regression model and the usage of (OLS) method of least squares, this paper conducted an empirical test dealing with the government relations and legal environment’s impacts on accounting conservatism. Results of this study show that the government relations and legal environment did affect the level of the company’s accounting conservatism. Specifically speaking:(1) government intervention degree is negatively related to the accounting conservatism.(2) Executives’political connections are negatively related to the accounting conservatism too.(3) The lower the company’s level of government relations, the higher the level of company’s accounting conservatism.(4) Regional legal system environment level has significant positive influence on accounting conservatism.On the basis of the above researches, this paper further examined their interaction effects on accounting conservatism. We test in two methods, grouping regression and interaction regression, founding that government relations’ negative impact to accounting conservatism will be eased with the improvement of the legal system environment. And also government relations can weaken the legal system’s positive influence on accounting conservatism significantly. At last, combining with the conclusions, through bringing forward comments and suggestions on system reform and accounting conservatism, this paper try to explore approaches to improve the level of accounting conservatism.