Accounting Conservatism And Investment Efficiency Relationship

As an important economic activity, investment behavior is of vital importance to the enterprise, because the level of investment efficiency is directly related to the production and business operation and the future development of the enterprise. However, not all the investment activities are efficient. According to the current mainstream point of views, there are two kinds of inefficient investment behaviors:over-investment and under-investment, and related research suggests that asymmetric information and agency problems lead to the company’s inefficiency investment issues. As the inefficient investment behavior will damage the enterprise value, therefore, how to solve this problem has become the key to improve the efficiency of corporate investment. Accounting conservatism, as one of the important principles to measure the quality of the accounting information, plays a major role in solving the information asymmetry and agency problems. Thus, we can link accounting conservatism and corporate investment efficiency and study what is the relevance of them in the capital market of our country.This article combs the related research literature about accounting conservatism, investment efficiency and the correlation between them. Theoretically study the effect of accounting conservatism on the corporate investment efficiency question, and on this basis, this paper puts forward the hypothesis. In this article, we use A-share listed companies as sample in Shanghai and Shenzhen stock market which time lasts from2009to2011.what is more, we want to adopt the C-score model to measure the level of accounting conservatism and adopt Richardson residual model to measure the investment efficiency of the enterprise. We mainly use descriptive statistical analysis, correlation analysis method and multiple linear regression analysis to do the empirical research.After the theoretical analysis and empirical test, this research draws the following conclusion:first, for the over-investment companies, the accounting conservatism can play a positive role in corporate governance, it can restrict over-investment behavior of the enterprise, and this phenomenon is more significant in the non-state-owned enterprises; second, for the under-investment companies, accounting conservatism plays the negative role in corporate governance, it can aggravate the under-investment behavior of the enterprise, and this phenomenon is more significant in the non-state-owned enterprises; third, according to the relevant research data:in our country, the phenomenon of over-investment is less widespread than the phenomenon of under-investment, but the degree of over-investment is more serious than the degree of under-investment and accounting conservatism is able to restrict over-investment behavior of the enterprise. At this point, the effect of accounting conservatism stands out. Overall, accounting conservatism helps suppress the inefficient investment behavior of the enterprise.