Analysis Of Accounting Conservatism On The Cost Of Equity Capital Impact

In the booming capital market and equity increasingly fragmented condition,accounting as an investor protection tool play an increasingly important role. Contract as a body corporate,conservative accounting information help alleviate information asymmetry, and thus reduce the degree of contractual incompleteness, so it has important internal governance functions. Meanwhile,conservative accounting information can be achieved through the choice of governance mechanisms balanced corporate governance.Accounting conservatism inherent governance through the function and the choice of external governance mechanisms achieve the goal of investor protection, therefore, this article on the economic consequences of accounting conservatism on the impact of equity capital explore its positive significance of economic activity. Risk by the information theory, the risk of asymmetric information is not decentralized system risk, and this will lead to adverse selection behavior. If information is not transparent, in order to achieve self-protection investors will ask to risk compensation, that is, raising the price of money, thus resulting in increased financing costs. Conservative accounting information can be used as a balancing mechanism so that information risks can be effectively reduced, thus lowering financing costs.However, we found that because of the special institutional environment, since the existence of the phenomenon of weakening governance, accounting conservatism into the impact of the equity capital plays significant differences in internal control in different enterprises, insider control, debt soft constraints and weakening of government intervention, as three governance disclosure of state-owned enterprises is suppressed desire to reduce earnings quality system root, this article attempts to study insider control, debt soft constraints, as well as the perspective of government intervention to further analysis of the public company accounting conservatism and the relationship between the cost of equity capital. In this paper, the Cscore index of Khan et al (2009) as a measure of the level of accounting conservatism indicators. China’s A-share listed companies related data from2010to2012, as the research sample, are uesed to study the accounting conservatism impact on equity financing costs through its statistical analysis and hypothesis testing, and finally how to train the actual business needs, as well as to improve the robustness of the accounting information to make. The empirical findings from the point of view, accounting conservatism and corporate cost of equity financing is negatively correlated, because insider control, debt soft constraints weaken the accounting conservatism and the cost of equity capital negative correlation. In varying degrees of government intervention in business, accounting conservatism and the cost of equity capital is not negative correlation between the existence of significant differences. Therefore, this study formed the following conclusions:first, information risk as the risk of non-distributed system, the risk premium would increase their cost of equity financing, accounting conservatism can effectively reduce the cost of equity financing; Second, since insider control, the existence of the debt soft constraints, there is the phenomenon of the weakening of internal governance, which would weaken the accounting conservatism and the cost of equity capital negative correlation.