Effect Of Ultimate Shareholders On Accounting Conservatism

Accounting conservatism is not only an important characteristic of financial reporting, but also a fundamental principle of the accounting recognition and measurement. As the earning-return model put forward by Basu in the nineties of the20th century, accounting conservatism is becoming a hot issue both at home and abroad, especially from the perspective of corporate governance, which has become a mainstream trend. For example, from the perspective of board characteristics, management shareholding and ownership structure and so on, research from ownership structure perspective is mainly about the relationship between top shareholder shareholding and accounting conservatism. La Porta et al.(1999) found out that ownership was heavily concentrated and many listed corporations existed ultimate controlling shareholder, from then on academics began to study ultimate ownership, a special form of equity. For all this research about characteristics of ultimate controlling shareholder and accounting conservatism is rare. This paper is based on the study of ultimate ownership, adopts the model suggested by Khan and Watts (2009) to examine how characteristics of ultimate controlling shareholder’s properties, control right, cash flow right and separation between control right and cash flow right have effect on accounting conservatism, reveals ultimate controlling shareholder’s looting behavior, provides empirical evidence for the establishment of legal protection measures for investors and promotes the healthy and harmonious development of the capital market in our country.Based on the theory of corporate governance and accounting conservatism, this paper adopts the method of combining theoretical analysis and empirical test to examine how characteristics of ultimate controlling shareholder have effect on accounting conservatism. Adopting the panel data consisting of827non-financial listed corporations (4135observations in total) in Shenzhen and Shanghai Stock Exchange from2007to2011, this paper applies series of pooled least squares to empirically and theoretically investigates the effect of ultimate ownership structure on accounting conservatism from the perspective of ultimate ownership. The empirical result shows:(1) State-controlled listed companies is more conservative than the non-state-owned ones;(2) Control right is negative with accounting conservatism significantly;(3) The separation degree of control right and cash flow has negative relationship with accounting conservatism;(4)Cash flow weakens the negative relationship between separation degree of control right and cash flow and accounting conservatism.