An Empirical Research On The Relationship Between Accounting Conservatism And The Investment Choices Of Institutional Investors

BackgroundThe investment behavior of Institutional investors becomes gradually the hot topic in recent years in the stock market. Their investment choices and investment strategy for the capital markets are both concerned by other investors.In the other hand, as an accounting principle, the conservatism has a long history and its application which in the practical market get more strengthening. According to a growing number of research shows that accounting conservatism is a very important character in the financial report. Accounting conservatism as a measure standard of the financial information quality, will protect the interests of owners. Because, the reflect of accounting earnings to "bad news", is helpful for investors choose the appropriate investment opportunities and investment timing.This paper will attempt to quantity accounting conservatism what is a measure standard of financial information. Through discussing whether accounting conservatism is a consideration Institutional investors for investors when they are choosing a long-term investment, analyzing the behavior of institutional investors, trying to find the realistic significance in the capital market, Providing the investment decision and financing decision for the extensively investors and the managers of the company.Main content and the research concludedThis paper is divided into five chapters, the content of the roughly content as follows:The first chapter is the introduction. This chapter contact with nowadays China capital market, putting the research problems, the research significance, the research content and research methods, highlight the main research work and essay structure arrangement of this paper. Meanwhile introducing and definition the concepts of institutional investors and behavioral finance generally.The second chapter is literature review and comments. This chapter were reviewed the relevant research from "accounting conservatism" and "accounting conservatism and institutional investor "of scholars both at home and abroad. And finding out the margin of domestic research paper, as a research point.The third chapter is theory analysis and study design. This chapter make theoretical analysis on "the considered factors and investment strategy of institutional investors in investment options" and "institutional investors consider the feasibility of accounting conservatism". Then according to theoretical analysis, taking research hypotheses between "institutional investor’s choice" and "accounting conservatism". This chapter on the basis of theoretical analysis forward proposed four assumptions are:(1) The institutional investor will choose the company which is accounting conservatism higher for investment.(2) Institutional investor demands the private property holdings enterprises accounting conservatism is superior to state-owned property holding enterprises.(3) in the investment equity under the condition of the same character, institutional investors will be more tended to choose a company to be in life cycle of the enterprise, and requirement of accounting conservatism will change with the cycle.(4) Different institutional investor’s requirements on accounting conservatism are different. Last based on the research hypotheses establish the research model, define model variables, select data sample, for later empirical research.The fourth chapter is data analysis and empirical results. This chapter gets the empirical data to support above research hypothesis by using the sample data by descriptive analysis and linear regression analysis, make results more persuasive.This paper selects the all listed companies as research samples,which is from 2007 to 2010,in our country, in Shanghai and Shenzhen stock exchange a-share listing, choose the financial data of the year of 2006-2009 and the chosen data by institutional investors of corresponding companies of the year of 2007-2010 (Considering when the choice is making will slow) were used to collect samples regression and points the annual sample regression method, we tested, the main research results indicate that:(1)institutional investors tend to choose the company which has high accounting conservatism for investment.(2)the practical to control people’s property and enterprise life cycles, also influenced institutional investors’investment options. Institutional investors tend to choose the actual control of state-owned property company and more favor growth life-cycle.(3)institutional investors holding company of non-state-owned property require accounting conservatism higher than state-owned property holding.(4)different institutional investors demand for the company’s accounting conservatism. This article through empirical analysis found that open mode fund demand for accounting conservatism highly than closed mode funds.(5)short-term inside institutions for industry investment choice has certain bias. Specific choice depends on the market and that focuses on hot. Empirical industry performance and in the past few years institutional investors is consistent with the select basic.(6)company market performance and investment choice with institutional investors are significant positive correlation.main contribution and research revelationThis article through the theoretical analysis and empirical test finally got the research conclusion is the company’s accounting conservatism can affect institutional investors investment options. In the same time, make some contributions as fellows:Frist,find a method to measure accounting conservatism. Second, start practice accounting conservatism in the capital market, to make up the blank for the domestic research in the field.Third, considering the investment choice of institutional investors in investment behavior, using lag date. Fourth,this article also examines the company actual controlling character, industry cycle and industry investment choice to institutional investors.In view of research contents of this paper further analysis, we can get the following enlightenment:First, except earnings per share, accounting conservatism is payed more and more attention. Second, Investment strategy transformation also need a period of constant break-in and fixed. Third, the listed companies should pay attention to each of the system management.Fourth; the listed company should seize the opportunity to attract more institutions to their investment. Fifth, suggest optimizing institutional investment group.shortages and limitationsDue to academic level, there are some deficiencies are mainly:First, based on research limitations, only to fund as the research object, to represent all institutional investors.Second, this paper only use open fund and closed fund to study different institutional investors of choices. Third, in constructing accounting conservatism index, gather data untrimmed process, appears unavoidably omissions and errors, are likely to make reverse regression coefficient exist errors. Fourth, linear regression equations have not fitting degree is high, explain variables and be explained nonlinear relation between variables may exist, this paper further verification failed to. Fifth, influence factors of institutional investors in investment choice still has a lot of, regression models well not completely includes.