An Empirical Study On The Relationship Between Accounting Conservatism And Financing Constraint

According to the Financing Pecking Order theory, when the corporate gets funding requirements it will firstly choose to use internal funds accumulation rather than external financing. In the modern corporate, due to the size of the business gradually increasing, the demand for capital is gradually increased, corporate rely solely on the accumulation of internal funds already can’t meet the demand for capital. Therefore, the corporate funding requirements need to seek the help of funds to external capital providers. External capital providers need to inspect the financial condition and results of operations of the corporate while providing financial support to corporate. Due to the presence of asymmetric information, the external capital providers can not directly observe the results of operations and financial condition of the corporate, what they can do to evaluate to determine whether they meet the funding conditions is through the accounting information disclosed by the corporate.Accounting conservatism has always been an important accounting principle. The Accounting standards in many countries take it into accounting information quality requirements. It has a positive role in increasing the effectiveness of debt covenants and easing excessive investment. But it can’t be ignored that accounting conservatism may cause distortion of corporate accounting information and the negative effects of external financing. It has resulted in the assets and income of the corporate to be underestimated. The external capital providers will not revert the true level of the corporate before examine the financial condition and results of operations. For one thing, because of information asymmetry external capital providers can’t get the true accounting information which can totally reflect the real corporate. Next, in order to restore the true level of the corporate is costly. Therefore, the external capital providers in accordance with this underestimated financial position to evaluate whether or not to provide funds as well as the number, it will make it more difficult to get more financial support in lower cost. The external financing capacity of the corporate has been weakened.Firstly, this paper sorts out, summarize and evaluate the current research of financing constraints. It concludes metrics and influencing factors of financing constraints as well as the relationship of accounting conservatism and financing constraints. We found that the study on accounting conservatism and financing constraints mostly from the active role of accounting conservatism, the study about partial confirmation of accounting conservatism affect the quality of accounting information thus affecting the external financing capacity is just started. Secondly, expounded the theoretical basis of the financing constraints based on it this paper analysis the relationship between accounting conservatism and financing constraints. On empirical research part, this paper select the A-share stocks listed in Shanghai and Shenzhen, in the four years as the research sample. Then, based on cash-cash flow sensitivity model, combined with the research of Chinese scholars, I build regression model. The regression results show that of accounting conservatism has a positive relationship between financing constraints. Further, this paper considers the impact of the monopoly of the industry, the external governance environment and the largest shareholding ratio. On the study conclusions, recommendations, and the deficiency part, through the theoretical analysis and empirical results, we get conclusions of this paper. According to the inadequacies of this article make clear the future research direction in this field. The specific framework is as follows:The first chapter described the background and purpose and significance of this paper, the research methods and ideas, pointed out innovation of this article and defines the concept.The second chapter, this paper collects and sorts out current research. Mainly from two aspects:accounting conservatism and financing constraints. We found that the study on accounting conservatism and financing constraints mostly from the active role of accounting conservatism, but the study about partial confirmation of accounting conservatism affect the quality of accounting information thus affecting the external financing capacity is just started.The third chapter, First of all, this paper analyzes the theory of information asymmetry, principal-agent theory debt covenants and creditor protection theory and its working mechanism. Second, on the basis of the above theory we analyze that how do accounting conservatism have an effect on financing constraints. The forth chapter, made the assumptions and the study design. First, on the basis of theoretical analysis combined with monopoly of the industry, governance environment and equity structure characteristics, then we got four hypotheses. Second, Collect and collate relevant data; Finally, I build regression model after variables selected.The fifth chapter, First of all, make descriptive statistics of variables. Second, make correlation analysis of the variables. Finally, analyze the regression and obtain regression results.The sixth chapter Combined theoretical analysis with empirical results we get the conclusion of this paper. According to the inadequacies of this article make clear the future research direction in this field.Based on theoretical analysis and empirical regression results, the conclusions are as following:(1)Accounting conservatism and enterprise financing constraints are related. This shows that accounting conservatism will increase the financing constraints; it is not conducive to obtain external funding support when the corporate need funds.(2)Relative to the monopoly industries, corporate in non-monopoly industries, accounting conservatism is more obvious aggravating role of financing constraints.(3)Relative to the area of good governance environment, poor governance environment area, accounting conservatism is more obvious aggravating role of financing constraints.(4)Relative to the structure of corporate ownership balancing largest shareholder absolute control structure of corporate, accounting conservatism more obvious aggravating role of financing constraints.At the end of the article, I put forward the lack of the research in this article. I choose the opposite number of the non-operating accruals to measure accounting conservatism; there are many other indicators to measure accounting conservatism. This article just take the district of environmental governance, ownership structure and industry monopoly into consider. There are some other factors such as board structure, the nature of property rights, political relationships etc. which need to be considered.