| Since the 21st centrury,the International Financial Reporting Standards(IFRS)set by International Accounting Standards Board(IASB)have had a worldwide influence,and the international convergence with IFRS has become a main trend.More than 130 jurisdictions have adopted or allowed IFRS up to 2016.On 15th February 2006,the new Chinese Accounting Standards for Business Enterprises(CAS)were published by the Ministry of Finance(MoF)and became effective on 1st January 2007,which are substantially converged with IFRS.In April 2010,the MoF released a roadmap for continuing convergence of CAS with IFRS.Then eight accounting standards were updated in 2014.In academic field,a lot of researchers have studied the economic consequences of IFRS and CAS.The research scope has been expanded from the impacts of accounting standards on financial reports and capital market to all sides of micro enterprise behaviors and macro economy.In this process,the intended effects of accounting standards have been explored clearly and the unintended effects began to attract more and more attentions.Simply stated,the "unintended effects" are the consequences that the standards-setters do not intend to cause,or the potential or indirect effects about which the standards-setters care very little about.However,extant research on the intended and unintended effects is fragmented and conducted in different scattered perspectives,which lacks a systematic knowledge on the unintended effects of accounting standards reforms.Therefore,this study makes a review on the unintended effects systematically,and then chooses the unintended effects of accounting standards reforms on capital allocation to research,on the background of the implementation of the new CAS in China since 2007.Capital allocation is the basic topic of finance and core activities of corporate finance.Besides improving the quality of financial reporting,the further objective of accounting standards is enhancing capital allocation efficiency.In general,capital allocation efficiency is mainly reflected by financing efficiency(cost of capital)and investment efficiency,while optimality of capital allocation structure is the foundation of capital allocation efficiency.Under the guidance of a theoretical framework for the unintended effects,this study explores the possible unintended effects of accounting standards reforms on capital allocation,which mainly include three aspects:(1)the indirect effects of accounting standards on cost of capital due to the adjustment of firms' investment;(2)the negative effects of accounting standards on cost of debt,due to the asymmetric effects of accounting standards reforms on cost of equity and cost of debt,and further subsequent effects on capital structure decisions;(3)the spillover effects of accounting standards on firms'investment efficiency through accounting comparability.Specifically,I firstly study the direct and indirect effects of accounting standards reforms on cost of capital through a deep theoretical analysis based on Capital Asset Pricing Model(CAPM).Using a sample of Chinese A-share listed companies from 2004 to 2013,I also provide empirical evidence for it based on the time effect of accounting standards reforms in China.Then with the same sample,I study the asymmetric effects of Chinese accounting standards reforms on cost of equity and cost of debt through accounting conservatism,and also the impacts on firms' financing decisions and capital structure.Finally,using a sample of Chinese A-share listed companies from 2005 to 2013,I adopt the measurement of accounting comparability on firm-year level and study the impacts of Chinese accounting standards reforms on investment efficiency through accounting comparability.This study gets the following conclusions:First,when investment is fixed,higher quality accounting standards will decrease cost of capital directly through improving financial reporting quality.However,when regarding investment as endogenous,higher quality accounting standards can also increase cost of capital because of the indirect-reversal effects of firms' investment changes.I give the specific condition of this situation,i.e.,the adjustment cost of new investment is sufficiently low to guarantee the sufficient elasticity of new investment.When considering the common agency problems between managers and shareholders,between large shareholders and small shareholders,the basic conclusion still holds.Second,the cost of capital on average is decreased after the implementation of the new CAS in 2007,but the decrease of cost of capital only exists at the beginning stage(2007-2009)while it is not significant at the stable stage(2010-2013).Through building AE index representing firms' characteristics,this study identifies the indirect effect of accounting standards reforms on cost of capital,and also find that the indirect effect is also one reason why the cost of capital increases at the stable stage of accounting standards reforms.The further analysis shows that although the relevance of accounting information increases after the adoption of new accounting standards,the reliability decreases,which gives further interpretations on the change of cost of capital.Third,accounting conservatism is significantly increased at the beginning stage(2007-2009)of Chinese accounting standards reforms,but it has a rising trend after 2010.The cost of equity decreases on average after the implementation of new CAS in 2007,but the fall of accounting conservatism attenuates the decreasing trend.In contrast,the cost of debt increases after Chinese accounting standards reforms,and the fall of accounting conservatism is the primary reason.Besides,with accounting conservatism going up at the stable stage of new accounting standards(2010-2013),the cost of equity adjusts timely with some deceases while the cost of debt does not.Fourth,an increase in accounting conservatism is associated with a greater likelihood of debt(versus equity)financing and a higher leverage.While firms' equity financing benefits from the improvement of accounting relevance after the implementation of new CAS in 2007,the debt financing is impeded as accounting conservatism decreases,thus the probability of firms' debt(versus equity)financing and leverage decreases.As accounting conservatism rises after 2010(continuous convergence CAS of with IFRS),the probability of firms' debt(versus equity)financing and leverage increases.Fifth,there is a significantly positive association between accounting comparability and firms' investment efficiency.After the implementation of the new CAS in 2007,investment efficiency increases due to the improvement of accounting comparability.The additional analysis shows that the positive relationship between accounting comparability and investment efficiency only exists in non-state-owned companies while state-owned companies are not,and the new CAS only improves investment efficiency of non-state-owned companies through comparability.Comparability mainly alleviates under-investment while over-investment is not,however,after the implementation of new CAS,both under-investment and over-investment are reduced by comparability,but the influence of new CAS on over-investment is stronger than under-investment.In all,this study explores some unintended effects of accounting standards reforms on capital allocation.It enriches the theory of capital allocation,and also clears the intended and unintended effects of accounting standards,which extends traditional economic consequences theory.Specifically,this study mainly has four contributions as follows:First,this study tries to use analytical research method to clear the relationship between accounting standards,cost of capital and firm investment,and it finds the unintended indirect effects of accounting standards on cost of capital both theoretically and empirically.Thus,this study contributes to the literature on cost of capital.Second,this study not only researches the effects of accounting standards reforms on cost of equity,but also cares the potential negative effects on cost of debt from the perspective of accounting conservatism,further on firms' financing decisions and capital structure.The impact of accounting standards reforms on investment efficiency through accounting comparability is also explored.Thus,this study contributes to the literature on the influencing factors of firms' financing decisions and investment behaviors.Third,this study contributes to the literature on economic consequences of accounting information characteristics(accounting conservatism and accounting comparability),because this study explores both the effects of accounting conservatism on cost of equity versus cost of debt,firms' debt(versus equity)financing and capital structure,and the effects of accounting comparability on firm investment efficiency.Fourth,this study also pays an attention to the time effect of accounting standards reforms,which can result into some new findings.Thus,it is more comprehensive to understanding the economic consequences of accounting standards reforms.In this study,I give some new ideas and findings on the unintended effects of accounting standards reforms.Thus,it has important implications for accounting standard-setters.The intended and unintended effects of accounting standards reforms should be balanced.Effective measures should be taken to restrain the unintended negative effects of accounting standards,while unintended positive effects should be encouraged to enlarge the benefits of accounting standards.Besides,firms' managers,investors,creditors and other related participants in capital markets can also benefit from this study. |
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