Research On Associations Among Accounting Discretion, Corporate Governance And Firm Performance

Accounting discretion is the the right of accounting choice accountants carry out, in accordance with management's intention. Accounting discretion is closely linked to firm future performance. When accounting discretion is to be used reasonablely, information from accounting system is even more useful to its external users' decision-making, corporate long-term value will increase, enterprises improve future performance. When to be manipulated by some kind of ulterior motive, accounting discretion to be abused of, information from accounting system is even less useful to its external users' decision-making, corporate long-term value will decrease, enterprises reduce future performance.According to these two different results, accounting discretionary act can be divided into effective contract and opportunism-based contract, resulting two views. Efficient contracting perspective asserts that managers, in general, exercise accounting discretion in an efficient manner consistent with long run shareholder value maximization. Opportunism-based contract argue that self-interested rent-seeking managers exploit lax governance structures to abuse accounting discretion in a bid to increase their wealth at the expense of shareholders.In the aftermath of accounting scandals at companies such as Enron and WorldCom, critics argue that effective corporate governance is crucial to standardize the use of accounting discretion. Corporate governance is necessary to arrange accounting discretion, also must have the arrangements for the operating rules, so that acts of accounting discretion take into account the interests of stakeholders. Corporate governance will give accounting discretion to managers, creating an opportunity for management's opportunistic accounting discretion. But at the same time effective corporate governance have the role of a binding on opportunistic accounting discretion. Through definding the powers, responsibilities and interests among shareholders, board of directors, board of supervisors, and managers, internal checks and balances of accounting discretion have been formated.The motivation and consequences of accounting choices and changes is the central issue of financial accounting research. After the 20th century, the end of the 70s, Jensen and Meckling put forward the "agency theory", application of "agency theory" to verify the motivation of accounting discretion of business managers and other interest groups has become the focus of empirical accounting research. The previous research of accounting discretion has proved the association between abuse of accounting discretion and poor quality of governance, and come to the conclusion that the phenomena of abuse of accounting discretion has been existed. Previous studies were lack of evidence of accounting discretion having an impact on corporate performance. If the association between accounting discretion and poor quality of governance constitutes evidence of management's abusement of accounting discretion, it is ought to observe subsequent deress of firm performance. This paper study the association among accounting discretion, governance structure and enterprise performance of Chinese listed companies, test opportunism or the effective motives lead the exercise of accounting discretion, according to datas provided by the annual and quarter report of Shanghai 50 Index Unit from 2006 to 2008, by analyzing the correlation among the accounting discretion variables and governance alternative variables, under controlling of economic factor variables. It is found that there is positive correlation between the quality of bad governance and the exercise of accounting discretion. However, this paper fails to find a negative association between accounting discretion and firm performance. Thus, this paper concludes that, on average, managers do not abuse accounting discretion at the expense of firms' shareholders.