Research On The Influence Of Accounting Conservatism To Investment Cash Flow Sensitivity

Enterprise free cash flow and investment problems are important part of financial management. They have significant influence to the scientific operation and development of enterprise. Under the assumption of complete markets, investment behavior has no correlation with the free cash flow. However, due to the existence of asymmetric information and agency problems, in the real market, the investment level is closely related to the free cash flow and presents investment-cash flow sensitivity.Accounting conservatism, namely accounting discretion, is one of the important principles of accounting information quality requirements. Accounting conservatism require enterprise’s accounting information timely reflect bad news in the development of business, and should confirm good news late on.The accounting conservatism principle can reduce the information asymmetry problem between internal and external investors, make the enterprise accounting information provide accurate and timely information for outside investors, and serve for enterprise stakeholders. Accounting conservatism is an important constraint to enterprise’s investment behavior.Accounting conservatism is an important way of corporate governance, can alleviate investment-cash flow sensitivity. On the one hand, it can alleviate the adverse selection and moral hazard caused by asymmetric information, so as to reduce the insufficient enterprise investment, and alleviate business investment-cash flow sensitivity; On the other hand, it can reduce the contradictions between managers of enterprises and shareholder caused by separation of property rights,so as to creditors and shareholders, and reduce agency cost, thereby reducing the excessive investment of enterprises, cut down investment- cash flow sensitivity.The conclusion of investment- cash flow sensitivity and Accounting conservatism is abundant, but the research involves accounting conservatism to the investment-cash flow sensitivity is relatively few. In the view of accounting conservatism,the research analysis the investment-cash sensitivity,can enrich the study of accounting information quality; The research can also improve enterprise’s efficient investment and has a practical significance.In this paper, through theoretical analysis, assumptions about the influence of accounting conservatism to the investment-cash flow sensitivity is proposed; And through the empirical research, the paper test these hypotheses and draw the conclusions. In china, enterprise’s investment-cash flow sensitivity is widespread existed; Accounting conservatism can alleviate business investment-cash flow sensitivity, improve the efficiency of corporate investment; In different ownership property companies, the influence of accounting conservatism to the investment behavior is different. Our enterprise and government should use accounting conservatism properly, and let it plays positive role in investment, providing a new method to improve the enterprise’s investment behavior.