The Research On Heterogeneity Of Institutional Investors, Companies’ Growth Opportunities And Accounting Conservatism

In recent years, due to the development of the global institutional investors and thepromotion of the related policies in China, the proportion of the shares held byinstitutional investors in Chinese stock market has been increasing in recent years. By theend of December2011, the market value of the shares held by institutional investors hasaccounted for70%of the floating stocks in the A-share market. The rapid development ofthe institutional investors will inevitably influence the quality of the financial reports ofChinese listed companies to a certian extent. In addition, in the Chinese accountingstandards of2006, accounting conservatism is positioned as not only one of the principlesof the accounting treatment, but also a qualification of the quality of accountinginformation. The high-quality financial reports emphasize the application of the principleof accounting conservatism. Prudent financial reporting accounting informationcontributes to reduce the degree of information asymmetry and raise the level of corporategovernance, and then play the role of protecting investors. In this context, on the basis ofprevious studies, this paper seeks to further study the influence on accountingconservatism by institutional investors.On the basis of the principal-agent theory and the asymmetric informationtheory,this article analyzes the impact on accounting conservatism when institutionalinvestors hold shares as well as the difference of the impact on accounting conservatismwhen the share are held by different types of institutional investors. And it furtherexplores the impact on accounting conservatism by institutional investors through acombination of the invested company’s characteristics (growth opportunities) and theheterogeneity of institutional investors. Within the framework of the theoretical analysis,this article adopts basu model to conduct empirical test of the assumption with the datafrom2003to2011of Shanghai and Shenzhen A-share listed companies. The findings ofthis article show that there exists accounting conservatism in Chinese listed companies;and the more the proportion of holdings by institutional investors is, the better theaccounting conservatism of the listed companies will be. However, the research onclassification of different institutional investors shows that the proportion ofshareholdings by pressure-resistant institutional investors has a significant positivecorrelation with accounting conservatism while that by pressure-sensitive institutionalinvestors has nothing to do with accounting conservatism. Furthermore, according to the study on the grouping of company’s growth opportunities, it shows that compared tocompanies with low-growth opportunities, the positive correlation relations betweenpressure-resistant institutional investors and accounting conservatism are more obvious inthe company with high-growth opportunities.The main contribution of this study is to confirm and verify the existence of differentrequirements that the institutional investors have on accounting conservatism because ofthe nature of the institutional investors and the characters of invested companies. Thepressure-resistant institutional investors require accounting conservatism of the investedcompanies. And in the companies with high-growth opportunities, the governance effectof accounting conservatism is more significant as the direct supervision becomes muchmore difficult. The results of this research help to understand the characteristics ofeconomic forces which lead to require accounting conservatism. In particular, on the basisof previous studies, this study provides a direct proof of the robust demand by thepressure-resistant institutional investors which are important investment groups.