| As one of the important principles of accounting, conservatism has long in common in accounting practice. After the global financial crisis in 2008, while reflecting on the rationality of fair value measurement, researchers began to attach importance to the principle of accounting conservatism. Early researches show that over-investment or under-investment caused by agency problem and financial constraints is common in China's enterprises. Does accounting conservatism have a positive economic consequence and provide a new path to control the inefficient investment?Based on the literature review and theoretical analysis of the relationship of accounting conservatism and inefficient investment, this thesis selects the data of Chinese A-share listed companies in 2006-2009 as samples. The measurement of inefficient investment and accounting conservatism are based on Richardson (2006) residual model and Givoly and Hayn (2000) accrual-based method. Then this thesis tests the relationship between accounting conservatism and over-investment, accounting conservatism and under-investment by multiple linear regressions separately. Furthermore, this thesis tests the nature of ownership's impact on the relationship between accounting conservatism and inefficient investment.The results show that accounting conservatism can reduce the inefficiency of over-investment, exacerbate the inefficiency of under-investment in private companies, but overall help to reduce the inefficiency of Chinese companies'investment. There is no significant difference between state-owned companies and private companies about conservatism's impact on over-investment. Compared to central-owned companies, the negative relationship between accounting conservatism and over-investment of local government controlled companies is weaken. This thesis not only enriched the research of the economic consequences of accounting conservatism, but also explored the potential ways to deal with inefficient investment. |
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