Research On The Role Of Accounting Conversation In Protecting Minority Shareholds

In 2008, considering investor’s intersests, FASB and IASB removed accounting conservatism, which is a requirement of accounting information qualify, from the draft of conceptual framework of financial accounting. And this event causes domestic scholars’ discussion on whether accounting conservatism exists in the accounting standards of our country. The research on accounting conservatism mainly focus on the following three aspects: the reasons why accounting conservatism exists in the accounting standards, the factors that influence accounting conservatism, and the ecnomic consequences which are caused by accounting conservatism. Although scholars find that accounting conservatism can protect creditors, reduce debt-financing costs, inhibit inefficient investment, and decrease the cost of equity capital, this paper argues that whether accounting conservatism is beneficial to the equity investors is the most important factor to measure the status of accounting conservatism in accounting standards. In recent years, domestic scholars begin to focus on the role of accounting conservatism on protecting equity inverstors. But because domestic scholars draw lessons from research ideas of foreign scholars, they focus on how accounting conservatism protect investors under the first kind of principal-agent confliction which is created between shareholders and managers, and they ignore that special equity structure produces the second kind of principal-agent confliction between large shareholders and minority shareholders in listed companies in our country and they ignore to research how accounting conservatism protect minority shareholders under the second kind of principal-agent confliction.Based on financial accounting target theory, the information asymmetry theory, principal agent theory and ownership structure theory, and the current situation of Chinese securities market and Institutional background of special equity structure, this paper establishes an analytic framework of the relationship of accounting conservatism and minority shareholders profit protection under the second kind of principal-agent problem. In the companies which have the second kind of principal-agent confliction, as the large shareholders become corporate insiders, minority shareholders face a more serious information asymmetry problem and the problem of large shareholders’ embezzlement. This logical framework respectivelystudy how accounting conservatism play a role of pricing and governance to resolve the above two types of problems. Firstly, the characteristics of accounting conservatism require not to overstate assets and income, which can enhance confirmability and sustainability of the revenue side of accounting surplus. Meanwhile, when a listed company imple conservative accounting policy, it has to increase accounting information disclosure. So minority shareholders can understand that the loss of accounting surplus is partly due to prudential behavior. Because of the above two approches, accounting conservatism can make that the company’s accounting information reflect the value of the enterprise in the future more accurately. And thus we design an empirical study on the relationship between accounting conservatism and future stock returns. The result proves that accounting conservatism strengthen the accuracy of the current accounting surplus to predict future stock returns. But in the companies which have the second kind of principal-agent confliction, the level of accounting conservatism is too low to protect the interests of minority shareholders. Secondly, this paper studies governance effect of accounting conservatism to large shareholders’ embezzlement. And we analyse how accounting conservatism distinguish invalid connected transactions, which are essentially big shareholders’ embezzlement, and refer that accounting conservatism plays a role of governance by monitoring and distinguish the big shareholders occupy behavior with regulators or laws as the safeguard.Finally, we point out that the role of accounting conservatism to relieve the second kind of principal-agent confliction between large shareholders and minority shareholders provides the empirical evidence for the existence of accounting conservatism. And combined other researches on influncial fators, we refer that the role of accounting conservatism to protect minority shareholders dependes on external regulation environment and legal environment.