Empirical Research Of Accounting Conservatism And Over-investment

The United States sub-loan crisis broke up in2007, with which global economic quickly deteriorated, not only made the country like Iceland whose financial and economic was dependent on the United States was on the verge of bankruptcy, but also badly affected the economic and development in China. But the investment as one of the three carriages of economic growth in china still maintained steady growth in the financial crisis. hi the period of2008to2009, total fixed asset investment in China was contrarian to increase substantially, this seemed to suggest that China’s investment in general had not been affected by the financial crisis. But scholars said that the micro enterprises’ investment reduced substantially under the impact of the financial crisis, and even pointed out that the investment of China’s enterprises in the whole period of financial crisis had manifested the under-investment. In that way, how did enterprises’ investment behaved actually in China during period of the financial crisis? Did it have changed the state of excessive investment before the financial crisis? It is worthy of discussion. If it was still over-investment, which would make the enterprises’ resources wasted and bring out operational risk, and if it was the state of under-investment that would cause a large number of enterprise funds idle and slow growth or even zero growth. In general, the inefficient investment would reduce the enterprises’ value and threaten the interests of outside investors. Moreover the enterprises’ microcosmic inefficient investment would hinder the development of macro economy, and distort the whole society’s allocation of resources.At last the inefficient investment becomes the bottleneck for economic growth. How to control the inefficient investment?In long term before, there had been controversies in domestic and foreign scholars on how to choose the accounting measurement principles between conservatism and fair value measurement to measure. But In the world financial crisis originated in the United States sub-loan crisis, the fair value as a "amplifier" made market volatility increased, which triggered a reflection on fair value measurement’ reasonableness in the academic world. The financial crisis provided a Unparalleled chance for the research of accounting conservatism. In China, the accounting conservatism as a governance mechanism, most researchers believed that accounting conservatism can inhibit the over-investment behavior of our listing corporation, but under the special period of economic, even the special property rights, no one investigates whether it can play its due role yet. Therefore, this paper, based on the above consideration, on the background of financial crisis, discusses whether the accounting conservatism as a kind of governance mechanism function can play out in the time of financial crisis, to constrain the inefficient investment behavior of enterprises. The review of the investment in the period of the financial crisis is to tell the Chinese government and enterprises how to deal with the problem of investment in the "post-crisis era".As for the research methods, this paper adopts the combination of normative and empirical method. According to the related literature at home and abroad as the basis, my paper at first discusses and analyzes the relationship between the over-investment and accounting conservatism in the normative method. And then it uses the Vogt (1994) model and Givoly and Hayn (2000) accruals measurement model to measure China’s inefficient investment behaviors and accounting conservatism in the financial crisis period, and uses multiple regression method to test in the financial crisis period whether our country is still inhibited the over-investment and accounting conservatism can play its role, and then further investigates the related problems of different nature of property right of enterprises.This paper is divided into five chapters, the main contents of each chapter are as follows:The first chapter is to introduce the research background and significance, research methods, research ideas and the main content. The second chapter is to review about the cause, the impact of factors, econometric model of over-investment; And then accounting conservatism’existence, influence factors, economic consequence and the econometric model of literature; At the end of this chapter is the literature review, as a role for direction of this study about during the period of financial crisis in China’s listing Corporation inefficient investment and accounting conservatism. The third chapter is the theoretical analysis for the empirical study part includes the concept of investment and accounting conservatism’s definition, and the introduction of some related theories in order to pave the way for hypothesis. The fourth chapter is the empirical part:firstly it gives hypothesis on our country inefficient investment and accounting conservatism’s impact in the financial crisis period; and then selects the model, the corresponding variables, and describes statistics variables; the last one of this part is to test whether the financial crisis period of China’s inefficient investment appears to over-investment, and accounting conservatism in financial crisis period can play a role to curb this kind inefficient investment. The fifth chapter summarizes the conclusions of this paper, and the contribution, deficiency about this research, and at last gives the possible direction of future research and suggestions.The findings of this research:Firstly, in the financial crisis period investment behavior of China’s listing Corporation is still over-investment. But because of the state-owned enterprises are benefited from more government support and good policies in times of financial crisis, so their cash flows are relatively loose which makes this kind firms’ over-investment compared to private firms’ are more significant. Secondly, accounting conservatism can ease the over-investment of China’s listing Corporation in the financial crisis period. And no matter what the full sample, or divided into state-owned enterprises and private enterprises according to the attribute of property rights, accounting conservatism can play a role to curb the over-investment. But because of the state-owned enterprise investment is affected by the administrative intervention and bank debt soft constraint, the effect of accounting conservatism in state-owned enterprises in the degree of inhibition to over-investment are not the same strong as in private enterprises.The contribution of this paper lies in:At first, solving the dispute. In the financial crisis period, on one hand there was a large increase of total social investment in fixed assets rose, on the other hand the scholars pointed out the enterprise investment spending was generally decline, even state-owned enterprises had been the state of under-investment replacing the over-investment in normal times. Therefore, this paper uses a combination of normative and empirical method, finally confirms’investment behavior that China’s enterprises in the period of financial crisis still shows over-investment, both private companies and state-owned enterprises are. Secondly, it is the new research view. This paper makes up for previous literature’blank about the problem of over-investment and accounting conservatism governance effect in financial crisis, and on this basis, also discusses the related content of the property rights of the enterprises. The last on is the use of model. Most of the domestic scholars was using Basu (1997) model to measure the accounting conservatism, but the use of Basu (1997) model’s premise is efficient market, but in China the weak efficient market, does not apply for this. So this paper adopts the accruals measurement model to ensure the reliability of the results to ensure the reliability of the results.The shortage of this research lies in:Firstly, the research’s period may not be perfect reaction to our enterprises’ actual investment behavior in the real financial crisis. The scholars’ research results as the foundation, the research’s start should be in the third quarter of2008as the dividing line may be more cautious. Secondly, the econometric models have defects. Vogt (1994) model uses the Tobin Q as a measure of investment opportunities in the index, but because China’s capital market effectiveness is insufficient, speculation is more, so the stock price not the true value of enterprises, and in the listing Corporation there are also non-tradable shares, its value is difficult to determine. Overall, the calculated Tobin Q values may not accurate, which may lead to model parameter estimation errors. Furthermore, for non-commercial measure of accounting conservatism accrual accounting data calculation, as the accounting data itself, it may be the result of enterprise earnings management, so it remains to be investigated.