Can Institutional Investors Improve Earning Conservatism?

At the beginning of this century, the Chinese government put forward the extraordinary development strategies of institutional investors. Under the guidance of the strategy, institutional investors on the securities market has expanded rapidly, so far, the capital market has initially formed a securities investment fund based, insurance funds, qualified foreign institutional investors and other institutional investors a combination of diversified development pattern.2004China promulgated the "State Council on promoting capital market reform and opening up and stable development of a number of opinions", hoping to develop institutional investors, and promote the development of listed companies, in particular to improve our corporate governance structure, thus improving the quality of accounting information. So, after several years of development, whether institutional investors has had a positive impact on listed company’s development, the improvement of corporate governance structure and improve the quality of accounting information? This article choose earnings conservatism, which reflects the quality of financial information, as concerns point, analyzes the influence of institutional investors on corporate governance, and to determine the proportion of institutional investors holding on company earnings conservatism. I hope conclusions of this study help to enrich existing theories for the selection of corporate governance mechanisms and provide a useful formulation for institutional investors development strategies in China.This paper is divided as follows:The first part is introduction, we describe the background and significance of this paper and briefly describes the research ideas,and point out the innovation process and the presence of defects. The second part reviews the research results of the past. The literature review is divided into two levels, the first level is the discussion on earnings conservatism; and theother level is summarize the two views of scholars on the effect of institutional investors on corporate governance and thereby earnings conservatism.The third part discusses institutional investors, Conservatism related concepts in detail, and analyze the characteristics of institutional investors. In addition, we analyze the relevant theory. That is, the basis of our current research, elaborating from two aspects of the role of institutional investors, and propose two hypotheses of this article. The fourth part selects listed companies accounting data from China’s Shanghai and Shenzhen stock market of A shares during2011-2012as empirical study sample. The descriptive analysis verified institutional investors and corporate governance; The subsequent regression model constructed by modifying Basu institutional Ownership and Accounting conservatism of the models examined the proposed second assumption, namely institutional investors holding can increase earnings conservatism.In order to enhance the persuasiveness of empirical test results, we further adopt another test of the surplus earnings conservatism reversal model of Basu (1997), supplementing as further proof, we find conclusions from two models is entirely consistent. The fifth part is the conclusion.The main conclusions of this study are:1. After years of development, Institutional investors has become more rational, more actively involved in corporate governance; greater the proportion of institutional ownership, the higher the level of corporate governance.(2) Institutional investors holding on the Public Company Accounting Conservatism impact is positive, larger the ratio of institutional investors holding, the stronger the public company accounting conservatism. The main innovation lies in this:Conservatism is an important embodiment of the quality of accounting information, the paper selected institutional investors holding, from the perspective of corporate governance, to study its impact on earnings conservatism; another is that this paper selected all qualified a-share listed companies accounting data from recent2011-2012Shanghai and Shenzhen stock as the empirical study sample, through amendments to the existing model, we study the implications of institutional ownership of listed companies on corporate governance and earnings conservatism. We hope to provide evidence of the impact of institutional investors holding on improving corporate governance and the quality of accounting information.