An Empirical Research Of Institutional Ownership And Conservatism

In recent years, more and more equity investors also began to focus on accounting conservatism. In previous studies, the main demand of accounting conservatism were creditors, as a result of creditor’s requirements of stability of the company’s annual revenue and continued cash flow to pay the interests, so the acts of managers in the invested company were constrained by debt covenants, the accounting conservatism was the most commonly used method of the creditor. Unlike the behavior of creditors, equity investors often want to maximize the value of the investment company, so in the past research, equity investors were not the dominate demanders of the accounting conservatism. However, in recent studies, there are some researchers put interest in foreign equity investor’demand of accounting conservatism. Therefore, the paper may introduce the main participants in the capital markets-institutional investors, to investigate whether they have the interest of accounting conservatism in corporate governance; meanwhile, we would investigate the different types of institutional investors demand for accounting conservatism.The main idea of this paper, the first of all, was the previously research of the demand for accounting conservatism’motivation and economic results, and then combined with the specific situation of China’s institutional investors, we would classified the institutional investors into three types in order to investigate whether institutional investors have interest of accounting conservatism. And finally, we would have corresponding policy recommendations on the basis of the empirical output. Based on the above analysis of the ideas, the structure of this paper is divided into:The first part is introduction. The introduction would put forward the background and significance of the research, the data collected by the research method, and the logical structure of research ideas in this article, meanwhile the introduction should point out the innovation of this paper and the corresponding lack points.The literature review section of this article intends to literature review is divided into two parts of the domestic and foreign. Review from the of accounting conservatism type and institutional investors in corporate governance effect. The accounting conservatism angle This paper reviews the formative causation and economic consequences at home and abroad on the soundness of the accounting research. From the point of view of the governance of institutional investors, the paper also reviews the corporate governance effect of institutional investors at home and abroad. And large number of accounting conservatism demand is mainly on the creditors, this paper also appropriate research review.The second part is literature review. This article intends to divided literature review into two parts, the domestic one and foreign one. From the accounting conservatism’s perspective, this paper reviews the formative causation and economic consequences at home and abroad of the accounting conservatism research. From the perspective of the institutional investors, the paper reviews the corporate governance effect of institutional investors at home and abroad. In the same time, the literature review also conducted a review of the literature and from two different accounting conservatism demanders-creditors and equity investors.The third part is theoretical study. In this chapter,there will be some theoretical studies into institutional investors’ demand of accounting conservatism, firstlly, theoretical study would elaborate the contract view and information view in accounting conservatism. Secondly through the agency theory and signaling theory the chapter would analysis the economic consequences of accounting conservatism-manager behavior and financing constraints. Finally, dominantly focusing on elaborating the choice of institutional investors in corporate governance and accounting conservatismThe fourth part is the empirical analysis. In this chapter, we would have the situational investors’demand of accounting conservatism to get regression analysis, the sample of panel data are from2007to2011five-year period. Combined with the improved Basu (1997) model, adopting the linear regression model to carry out regression analysis. And finally, we would adding a causality test to further confirming the hypotheses of this article. The fifth part is conclusions and policy recommendations. In this chapter, we should based on the empirical results, and summarize the accounting conservatism needs of different types of institutional investors and different companies characterized institutional investors, the paper concludes that:First, only the ownership percentage of the value-oriented institutional investors is positively correlated with the holding company’ accounting conservatism. The moderate type of institutional investors and speculative institutional investors with holdings company’ accounting conservatism are not presented significant relationship. This solution shows that under the value-oriented institutional investors’governance, they would treat accounting conservatism as an incentive means to reduce agency costs, which can inhibit the company’s management’ over-investment behavior and the behavior of exaggeration gains.Second, for company of high-growth and asymmetric information, the value-oriented institutional investors stake explain of the potency dimension of the company’s accounting is higher than the overall sample. And as to the information symmetry of the low-growth company, the value-oriented institutional investors stake of company accounting conservatism did not explain. This may be more uncertainty and subjectivity for high-growth companies and asymmetric information exists, so the value-oriented institutional investors need accounting conservatism to constrain the company’s economic behavior to play a role in reducing agency costs. For low growth or information symmetry group, the value of investment-oriented institutional investors does not have this kind of demand.And also this article also propose some suggestions such as made great efforts to develop the value-oriented institutional investors, the enhanced accounting conservatism as well as improve the quality of information disclosure policy recommendations base on the conclusion.The contribution of this paper is mainly reflected in the following aspects:First, this article combine institutional investors in corporate governance effect with accounting conservatism, enhance the demand of the accounting conservatism of the institutional investor. In previous studies, it is often regard debtor’s demand for accounting conservatism as a research object, as a result of the study on the corresponding debt covenants as well as financing constraints behavior. Domestic and foreign research rarely relates to equity investors as the demand for accounting conservatism main empirical research. In this paper, there is a new research perspective to enrich the empirical research.Second,this paper divided institutional investors into three categories, that is value investing type, moderate type and speculative type. The basis of the definition of each institutional investors are in accordance with the ownership concentration and the time span. The results show that only the value-oriented institutional investors is the main demand of accounting conservatism. Other types of institutional investors have no demand of accounting conservatism. The conclusion make a more in-depth understanding of the institutional investors, which provides a new perspective and point of view.third, after the results of empirical, the article added a causality test. Though causality test is prove that institutional investors in corporate governance account of accounting conservatism. Further reflect the needs of the accounting conservatism with value-oriented institutional investors.Not a listed company has attracted institutional investors to value investing with accounting conservatism, when added causality test,the empirical model become more rigorous.The lack of this paper are shown in the following:First, the sample selection capacity is insufficient. When removal of the IPO and financial institutions and other companies, the sample capacity ultimately made a total of1310samples. As the reason of classification, combined with the special nature of China’s capital market, the main value-oriented institutional investors remain only389samples. This shows the limited time span and sample capacity. The regression conclusions may be influenced by random factors, so the value-oriented institutional investors need more time and more samples to enhance the explanatory power of the empirical analysis.Second, the study results may be affected by the impact of the macro environment. Since the outbreak of the global financial crisis in2008. The impact of the crisis of domestic listed companies, especially export-dependent enterprise accounting’ conservatism exists, this article does not measure and study the influence. The empirical research may be affected by the impact of the global financial crisis in2008. So the empirical results may be affected because of the deviation. Third, institutional investors classification subjectivity. In this paper, the institutional investors classification is based on the concentration of institutional investors holding and shareholding time span. Ownership concentration, the long time span is divided into the value-oriented institutional investors, such investors is this article main research object. This classification may result in a deviation.