The Research On The Relationship Between Fair Value And Accounting Conservatism

The global financial crisis which originated from the American subprime crisis has initiated the debate on the fair value. The financial community believes the fair value measuring principle brings about the fluctuations of elements of financial statements and magnifies the negative effects of the global financial crisis, ultimately lead to the accounting information distortion. The accounting community demonstrates that the fair value measuring is not the main reason of the financial crisis, which is the most relevant measure of financial instruments.Under the financial crisis and international standards convergence circumstances, this paper researches on the relationship between the fair value and the accounting conservatism, combining with macro economic background.This paper employs the normative research and the empirical research methods to research on the relationship between the fair value and the accounting conservatism. Primarily, this paper reviews the research status on the fair value accounting and the accounting conservatism. In the second place, this paper elaborates the theory on the fair value and accounting conservatism respectively, emphasizing the application of the fair value in the Accounting Standards for Business Enterprises and the measure method of the accounting conservatism, in order to lay the foundation of the empirical research section. Afterwards, this paper analyses the consistency of fair value and the accounting conservatism on reflecting risks and decrease in value, the contradictoriness on reflecting profits and increases in value. This paper proposes hypothesizes combining with macro economic background. In the empirical research section, this paper applies three methods to measure the extent of the accounting conservatism in the descriptive statistics, empirical analysis and the robustness test respectively. in order to enhance the preciseness of empirical analysis and make the research conclusion more persuasive. This paper is divided into five chapters:Chapter one is the introduction, which states the research background and meaning primarily and introduce the main content and method in brief. Besides, it summarizes the research frame.The second part elaborates the theory on the fair value primarily. emphasizing the application of the fair value in the Accounting Standards for Business Enterprises in order to lay the foundation for choosing the sample company. Secondly, it states the theory on the accounting conservatism, which consists of the concept, kinds and measurements. It illustrates that there are the conditional conservatism and the unconditional conservatism, this paper will study on the conditional conservatism. In part two, this paper stresses the measurement of accounting conservatism in order to choose the measurement model in empirical research. The last section will analyze the relationship and propose the hypotheses.The third chapter is the study design, which includes the sample selection, data sources, the measurement model and descriptive statistics. It will apply the measure of skewness and the fluctuation of surplus in the descriptive statistics. It will make use of the persistence of surplus measure model in the empirical analysis， which has been employed by Ball and Shivakumar(2005).Chapter four consists of the empirical results and the robustness test. It utilizes the accrual-cash relations measure model in the robustness test.The fifth part includes the research conclusions and countermeasure suggestions. It will put forward the main conclusion based on the relevant empirical analysis.Accordingly, this paper draws the following conclusions:In the economic expansion period, appreciation of assets and income predictable are common, the application of fair value will reduce the measured degree of accounting conservatism. In the economic contraction period, depreciation of assets and losses predictable are obvious. the application of fair value will increase the measured degree of accounting conservatism.The innovation of this paper can be illustrated as follows:firstly, it employs the empirical approach to research the relationship between the fair value and the accounting conservatism. Due to there are plenty of normative researches and short of empirical researches on this subject, this paper may enrich the research achievement in this field. In the second place, this paper makes use of three empirical measurements. Givoly, Hayn and Natarajan(2004) have analyzed the relationship between the four methods, which have drawn a conclusion that it will get the wrong result if employing only one method. As a result, this paper will employ three different methods to measure the extent of the accounting conservatism. It will apply the measure of skewness and the fluctuation of surplus in the descriptive statistics. It will make use of the persistence of surplus measure model in the empirical analysis, which has been employed by Ball and Shivakumar(2005). It will utilize the accrual-cash relations measure model in the robustness test, in order to make the results more precise.