The Impact Of Ownership Concentration And Outside Blockholders On Accounting Conservatism

The accounting conservatism has existed for a long time. It is quite often used to measure the level of quality of accounting information. As the quality of accounting information is very important to stockowners, the accounting conservatism is worth to be discussed. Many foreign scholars have proved the existence of the accounting conservatism long ago, but domestic scholars began to study the accounting conservatism since1990’s. Later, many scholars put more emphases on the factors of the accounting conservatism.The Growth. Enterprise Market is a newly developed securities market. Known as "China’s Nasdaq", it is quite different from the motherboard market, especially on the ownership structure. China’s GEM has been established for four years, but the studies on GEM’s accounting conservatism are relatively rare. This paper proves whether the accounting conservatism exists on the GEM, then discuss the impact of ownership concentration and outside blockholders on GEM’s accounting conservatism.After a literature review of the researches on the accounting conservatism, ownership concentration and outside blockholders, this paper introduces the general situation of GEM, analysis the level of GEM’s ownership concentration and its outside blockholders.Based on the separation of ownership theory, agency theory,"benefit cooperating effect" and "entrenchment defending effect ",this paper proposes three assumptions. Then we selects for GEM listed companies of2009-2012as sample, using Basu (1997) model to prove the three assumptions. The empirical analysis includes descriptive statistics, correlation analysis and empirical regression. Firstly, use Basu (1997) model to prove whether the accounting conservatism exists in the GEM. Secondly, use the modified Basu (1997) model to explore the impact of ownership concentration in GEM’s accounting conservatism. In the end, use the modified Basu (1997) model to explore the impact of outside blockholders on GEM’s accounting conservatism.This paper proves that the accounting conservatism exists in the GEM, but the level of accounting conservatism is declining. Also this paper finds that the higher the degree of ownership concentration is, the lower the level of the GEM’s accounting conservatism is. The empirical results do not prove directly the positive relationship between outside blockholders and the GEM’s accounting conservatism.For the conclusions of this paper, we propose three recommendations to improve GEM’s ownership structure and to protect the investors. Firstly, maintain an appropriate level of ownership concentration and increase outside blockholders. Secondly, strengthen the supervision system and improve the information disclosure requirements. The last, establish and improve laws and regulations to improve investor protection system.The main contributions of this paper are as follows:First, choosing the GEM as the research object, differs from the previous researches. Second, due to the unique feature of the GEM’s ownership concentration and outside blockholders, this paper deeply analyses the impact of ownership concentration and outside blockholders on the GEM’s accounting conservatism.There are two shortcomings of this paper. First, the number of samples is not large enough. Second, the explanatory variables of ownership concentration and outside blockholders are not comprehensive enough.