Accounting Conservatism, Earnings Persistence, And Accruals Anomaly

The Accounting conservatism is "the most pervasive accounting measurement and theoldest principles". Watts (2003) argues that the essence of accounting conservatism isdeferential verifiability required for recognition of losses versus profits. As the accountinginformation quality characteristics of the specific types of accounting theory and practice,accounting conservatism has a profound impact and is hot spot in accounting field researchnearly ten years. But there is lack of the relevant research whether accounting conservatismaffect China’s capital market.In1996, Sloan pointed out that in the market investors focus on total of earning and areunable to identify that the difference between accruals persistent and the cash flow persistent,tend to overestimate the accruals persistence. As one of basic principles of accounting,accounting conservatism is the most important characteristic of measuring the financial reportand conservatism’s asymmetric reliability and verifiability requirements that effect on validityof capital markets, so firstly according to persistence idea which accruals have highsubjectivity, strong operability and low reliability, we mainly research accountingconservatism’s effects on accrual persistence. Then this paper considers that market cannotidentify information of accrual which leads to accrual anomaly， which departures fromcapital market theory, and as a result there has been aroused a lot of study about it.Accounting conservatism’s effects on accrual anomaly will help us understand therelationship between accounting conservatism and accrual anomaly, and from another angleillustrate the importance of the study of accounting conservatism.This study selected the A-stock in Shanghai and Shenzhen stock exchange of2007to2010as the research sample, using multiple linear regression model method, the paper investigatesaccounting conservatism’s effects on accrual persistence, and in turn, accrual anomaly, showsthat the level of accounting conservatism is higher, the level of accrual persistence is higher;At the same time, the level of accounting conservatism is higher, the level of accrual anomalyis lower, and the robustness test also support the above conclusions.This paper from the perspective of accounting conservatism to study accountingconservatism’s effects on accrual persistence, and in turn, accrual anomaly is a new attempt,and it will help make further study about causes of accrual anomaly, and provides certain reference to regulators in Guidelines and policies, and improve investors to value accrualanomaly, eliminate accrual anomaly in market, and this research provide new empiricalresearch to understand the economic consequences of accounting conservatism.