A Study On The Impact Of Asset Impairment On Over - Investment Behavior Of Listed Companies

The investment decision and investment activities of corporation will affect the achievement of sustainable development and enterprise value maximization at the micro, and at the macro they affect the overall economic development and resource allocation. In recent years, companies in China continue to expand the scale of investment, but overinvestment is common because of principal-agent relationship, the state-owned holding and bad corporate governance mechanisms. Overinvestment is a waste of resources. It increases business risk and may bring enormous loss to companies. The governance mechanisms of overinvestment has been a hot issue of academic research. Accounting conservatism is an important quality characteristics of accounting information, but also an effective corporate governance. Asset impairment accounting is an important application of accounting conservatism in practice. This paper does research about the listed companies in C hina by empirical data, and analysis the correlation between provision and reversal for impairment of assets and overinvestment. My aim is to verify whether the application of the principles of accounting conservatism in china will affect the company’s investment decisions and restrict overinvestment. This paper contributes to enrich the research in the area that accounting conservatism affects the allocation of social resources, while providing strong support for the specific application of the principle of accounting conservatism in our accounting standards, and it does good for realizing the maximization of corporate value and sustainable development goals.This paper reviews the relevant literature and set A-share listed companies of the non- financial sector from 2007 to 2013 as research object. Regression model is set up to analysis the correlation between the provision and reversal for impairment of assets and overinvestment, and to further discuss the differences in governance mechanisms of overinvestment between state-owned holding companies and non-state-controlled companies. The results show that provision for asset impairment in general is able to restrict over-investment behavior of the company, but in the non-state-owned holding companies this effect is stronger than the state-owned holding companies. Asset impairment reversal in general will promote the company’s overinvestment. According tothe empirical results, provision for asset impairment can restrict overinvestment in C hina, but due to the specific institutional context, this effect is weaker to some extent in the state-controlled enterprises.