Research On The Role Of Signaling Robust Accounting Information

As a traditional requirement of accounting information system, accounting conservatism principle has been existed in many countires’accounting practices for centuries. It was accepted by lots of countries in the world that the accounting conservatism was a fundamental accounting principle and dominated the formation of accounting standards. It was generally agreed that the application of conservatism in accounting practice may contribute to the decrease of the information asymmetry, to protect the investors especially the creditor or lenders and to promote the contract efficiency.It is not difficult to predict that the conservatism principle will continue to influence the accounting theory and accounting practices. Theorefore, this paper is going to study the information sending role of the degree of accounting conservatism. To be a bit more concrete, this paper is conducted mainly based on the principle-agent theoretical framework of the corporation and the signal sending theory. Firstly, this paper analyzes the information sending role of accounting conservatism by considering the corporate governance mechanisms’s influence on the information disclosure of managers. The conclusion seems to support that if there is complementary relationship between the corporate governance and accounting conservatism, when the company’s corporate governance mechamism do not operate efficiently, there exists separate equilibrium. It can be interpreted as in such conditions companies with good future operating performance may have incentive to disclose information to investors by using the degree of accounting conservatism. At the same time, due to the high cost of conservative reporting to the companies with bad future operating performance, these companies may choose to not conservative report the finanicial statements. To test the ROA predictability of the accounting conservatism, this paper firstly investigates whether the degree of accounting conservatism has any incremental information content based on the current period ROA. The result seems to suppot the view that the degree of conservatism may convey incremental information in addition to the earings information. To further test whether the conservatism accounting information has the information sending role, this paper positively investigates the management signal sending behavior by using the degree of accounting conservatism with Chinese capital market background. Specifically, this paper uses the Chinese A shares listed companies during2004-2011as the major research samples, and firstly investigates the relationship between the degree of conservatism (C_Score) and the future performance (Return on asset, ROA) of company. The result suggests that the degree of conservatism is positively correlated with companies’future operation performance. Morever, from the corporate governance perspective, this paper positively investigates the relationship between the corporate governance mechiansm and the degree of accounting conservatism with the background of china capital market. The results seem to show that more efficient corporate governance may contribute to the more conservative accounting information. Based on the above researches, this paper finally tries to indentify several factors that might influence the management’s incentive of signal sending behavior. The whole organization of this paper is as following:This paper is mainly organized with seven parts:The first chapter is the introduction of the research background, research questions, research content and the research design. There is also the discussion of the contribution of my research.The second chapter is mainly about the conception, literature review and the analysis of the institutional background. This part detailed reviews the origin of the accounting conservatism and the definition of accounting conservatism both on accounting standards board perspective and on theory perspective. Moreover, this part reviews the analytical model of the Bagnoli and Watts (2005) to provide the theory framework for the further positive studies.The third chapter is the analysis of the mechanism of the accounting conservatism information sending by considering the corporate governance mechanisms. Based on the Spence (1974) signaling framework and the Bagnoli and Watts (2005) theory model, this chapter mainly analyzes how the quality and efficiency of corporate governance mechanism influence management’s information disclosure behavior.The fourth chapter is mainly investigates whether conservative accounting information distorts the financial reporting or contains incremental information based on current ROA by using future earnings response coefficient model.The fifth chapter is considering that if managers trade-off the benefits and the costs of accounting conservatism, then managers’expectation of the future performance of the company may be reflected in some extent on the degree of conservatism that managers choose to report. This part positively tested the hypothesis that whether the degree of accounting conservatism may predict company’s future profitability.The sixth chapter positively investigates the factors that might influence the predictability of the degree of accounting conservatism on the corporate governance perspective. And finally identifies the factors such as characteristics of ownership, independent auditing, and managers share holdings may nave effect on the incentive of managers information sending, thus influence the performance predictability of the degree of accounting conservatism.The seventh chapter is mainly about the research conclusions, policy suggestions, the limitation of this study and posibble future research problems.