Nature Of The Institutional Investors, Accounting Conservatism And Firm Value

Since the modern company has been produced，the historical trend the separationbetween ownership and managerial authority appeared. And principal-agent problemproduced. In order to solve this problem, we must design a series of institutional arrangement.Corporate governance structure will be perfect, Agency cost will be minimize and thecompany performance will be improved through these system arrangement. Since the1980s,with the rapid expansion of the capital market, institutional investors become a main force ofinvolving in corporate governance. So institutional investors provide a new idea for agencyproblem. Some scholars think that shareholders will have more incentive to supervision ifthey hold more stock. But some empirical evidence show that Shareholder activism is notrelated to the corporate value. Although the academic debate continues, it is a fact thatinstitutional investors,strategy have been changed. What is the effect that institutionalinvestors Participating in corporate governance? With the rise of shareholder activism andspread in the worldwide, this problem appears important increasingly.This research is based on the perspective of accounting conservatism. Firstly, we classifyinstitutional investors, We define monitoring institutions as those that are both institutionswith long investment horizons and concentrated holdings, and independent from management.Secondly, we classify two sub samples to research whether the positive association betweenmonitoring institutions and accounting conservatism is more pronounced among firms withmore growth options. Thirdly, according to the companies with monitoring institutions, wediscuss whether accounting conservatism lead to firm value. Our research conclusions are:firstly, we find that higher ownership by institutions that are likely to monitor managers isassociated with more conservative financial reporting; secondly, this positive association ismore pronounced among firms with more growth options, where direct monitoring is moredifficult and the potential governance benefits of conservatism are greater. lastly, in thesample that monitoring institutions invest, we find a positive association between accountingconservatism and firm value, it implies that institutional investors improved firm performanceby means of making enterprise management status better.