Research On Accounting Conservatism And Investment Efficiency

As the main driver of business development and the important foundation of cash flow, investment doesn’t only relate to the business risks and intrinsic value, but influences the fluctuation of the macro-economy. Investment is the starting point of a series of key issues, and the choices of financing and dividend decisions are mainly depended on improving the efficiency of investment, and investment efficiency has an important meaning for the development of enterprises. In the reality of the capital market, due to the presence of asymmetric information and agency problems, Inefficient Investment behavior such as excessive investment, inadequate investment other short-sighted investment serious impact on the allocation of resources and enterprise development. For governance factors in the way of non-efficiency investment, the high-quality accounting information plays an important role, and accounting conservatism as an important feature of high-quality accounting information, will inevitably have an impact on the operating efficiency of enterprises.Based on this background, the paper selects non-financial listed companies as samples in Shanghai and Shenzhen A-share board from 2007 to 2013, C-score was used to assess the level of accounting conservatism, the residuals of the Richardson was applied to measure investment efficiency, and then we research the effect of accounting conservatism on the enterprise investment efficiency with the consideration of our special institutional background. Firstly, we review the relevant literatures to determine the research perspective, and draw on the theory of asymmetric information and agency theory elaborated. Based on the definition of relevant concepts, the paper uses theory of asymmetric information and agency theory as an analytical tool to clarify the mechanism of accounting conservatism’s affections on the efficiency of investment. From the perspective of inefficient investment behavior’s reasons, Overinvestment and Underinvestment are caused by conflicts of the interests of all parties and the financial constraints which were caused by information asymmetry. Accounting conservatism had asymmetric features about gains and losses’ confermation, which results some economic consequences. Accounting conservatism has an effect on investment behavior through reducing information asymmetry and the agency problem which exist in a variety of businesses on corporate finance. For excessive investment behavior, the accounting conservatism produces exert control effects by slowing agency problems which exist between internal shareholders and managers, controlling shareholders and minority shareholders. For the lack of investment behavior, the accounting conservatism plays an important role in financing costs by easing shareholders and creditors’information asymmetry. Under the ownership of different institutional arrangements, the state-owned listed companies and non-state-owned listed companies has some differences in governance structure and financing exhibit which lead to different consequences. Based on the analysis of the impact of the mechanism proposed hypothesis,the paper selectes the study variables and build analytical models, and then inducts research on the relationship between the two factors.The findings of this study can be summarized as follows, when companies face excessive investment, accounting conservatism and corporate investment levels are negatively correlated, accounting conservatism can effectively reduce excessive investment behavior of enterprises. When companies face underinvestment, accounting conservatism and corporate investment levels showed a positive correlation, it will intensify the underinvestment of the enterprises. What’s more, the nature of state-owned property can weaken the effect of accounting conservatism on overinvestment and underinvestment. While the influence of accounting conservatism on the efficiency of investment has advantages and disadvantages, accounting conservatism plays an important role in improving the corporate governance and investment efficiency in general. Finally, according to research findings, we make relevant policy recommendations and suggestions.