Research On Accounting Conservatism And Corporate Investment Efficiency

The investment decisions and their efficiency are essential to the survival and healthy development of enterprises. However, due to agency conflicts and the inevitable information asymmetry in the capital market, corporate investment often deviates from its optimal level, which causes over-investment or inadequate investment. Both the over-investment and inadequate investment will lead to the enterprises’low investment efficiency and damage the corporate value. As one of the important principles of accounting, conservatism can help improve the quality of accounting information, mitigate agency conflicts between internal and external stakeholders, and reduce information asymmetry. Can accounting conservatism positively influence the investment efficiency? This question is the focus of this article.Based on the literature review and the analysis of the relationship between accounting conservatism and investment efficiency, firstly we theoretically analyzed the relationship between accounting conservatism and investment efficiency. This article selects the data of Chinese A-share listed companies in2008-2010as samples. The measurement of accounting conservatism and investment efficiency are based on Givoly and Hayn(2000) accrual-based method and Richardson(2006) residual model. Then this thesis uses multiple linear regressions to test the relationship between accounting conservatism and over-investment, accounting conservatism and inadequate investment separately. Considering the reality in our country, we also test the nature of ownership’s impact on the relationship between accounting conservatism and investment efficiency.The results show that accounting conservatism can help reduce over-investment, and exacerbate inadequate investment of non-stated-companies. There is no significant difference between state-owned corporate and non-state-owned corporate. This thesis not only enriched the research of the economic consequences of accounting conservatism, but also explored ways to increase investment efficiency and enhance enterprise value.