Effects Of Audit Committee Characteristics And Accounting Conservatism

The important feature of modern corporate governance system is the separation ofownership and management. When managers contradict shareholders’ goals which seek themaximization of shareholders’ wealth, rational managers are likely to use their informationaladvantage to take action against the shareholders, so that they can get maximum effectiveness.To effectively prevent the manager’s moral hazard and adverse selection, the Audit CommitteeSystem came into being. By executing pre-control, matter of communication and coordination,as well as supervision afterwards, The Audit Committee can effectively resolve the agencyconflicts arising from the separation of ownership and improve the quality of accountinginformation. As we all known, conservatism is an important measure to reflect the qualitystandards of accounting information, Accordingly, the Audit Committee has an importantimpact on the accounting conservatism.Based on the Corporate Governance Theory and the Agency Theory, this paper combinedliterature about the Audit committee and accounting conservatism at home and abroad, usingthe modified surplus-stock returns method and the modified accrual-cash flow method tomeasure accounting conservatism, We specified a Panel Date Model to test the proposedhypotheses using data from2008to2013with821listed manufacturing companies inShanghai and Shenzhen A shares market. At last, the results revealed the impact mechanismbetween the Audit Committee and the accounting conservatismThe results show that Audit Committee characteristics have an important impact on theaccounting conservatism. Specifically, the established time of Audit Committee, the averagetenure of Audit Committee and the meetings of Audit Committee had a significant positiveimpact on accounting conservatism．However, the size of Audit Committee, the independenceof Audit Committee and the professional competence of the Audit Committee didn’t havenotable positive effect on accounting conservatism. Further study indicated that the size ofAudit Committee, the independence of Audit Committee and the meetings of AuditCommittee in the state-owned and non state-owned listed companies on ManufacturingIndustry had different effects on accounting conservatism.The conclusion is helpful to enrich the Theory of Corporate Governance, especially inthe role of Audit Committee. At the same time, it’s also has some practical significance for establishing Audit Committee properly, optimizing corporate governance structure,as well asdeeply understanding and improving accounting conservatism.