Research About The Impact Of The Board Of Director Characteristics On Accounting Conservatism

Accounting conservatism is the most brightest quality of accounting data characteristics (Watts,2003), debt contract, litigation, legal, tax etc. are the reasons why accounting conservatism appears. Accounting conservatism is divided into two types:conditional conservatism and unconditional conservatism. The former is principle-oriented conservatism, which leaves larger operational spaces to managers, and the latter is rule-oriented conservatism, which based on documents and other legal criterions, so the research of this paper is about conditional conservatism. A lot of studies showed that accounting conservatism is an effective tool to reduce the agency cost and the information asymmetry. The cautious attitude in the accounting information acknowledgment makes enterprises are able to verify losses and gains asymmetrically, and then reduce managers’ opportunistic behavior, and finally protect all the shareholders’ interests.The board of director is the key link between shareholders and senior managers, and it is a very important part of corporate governance. The board of director has two important functions:supervision and making strategic decisions. Through correctly evaluating the performance and behavior of managers, the board of director can make reasonable incentives or penalties to managers, and then minimize the interests conflicts between shareholders and managers, and also the agency cost. After that, the board of director can help to maximizing the enterprise value.Scholars has done a lot of studies about the factors which influence accounting conservatism. The scholars abroad mainly focused on debt contract, litigation, legal, corporate governance, agency problem etc. While domestic scholars thought that the nature of property rights, the control of large shareholders, corporate governance and accounting standards are the main factors which influence the accounting conservatism. Study about the impact of the board of director characteristics on accounting conservatism is still controversial, and the research about how the gender diversity of the board effect on accounting conservatism is rather rare.In this paper, the characteristics of the board are divided into six aspects, namely, the scale of the board, the independence of the board, the leadership structure of the board, the gender diversity of the board, the incentive of the board and the board meeting frequency. What’s more, the accounting conservatism is represented by C-score conservatism index. First, this paper will find the evidence that accounting conservatism exists in our listed firms, and then, this paper will discuss the effects of the ownership and each characteristics of the board acting on accounting conservatism separately.This paper consists of six chapters, the main contents of each chapter are as follows:Chapter1:ExordiumThis chapter mainly includes the background of this study and research significance, research ideas and the framework, and research methods. This part explains the definition and the economic consequences of accounting conservatism, at the same time, it also analyses the importance of the board of directors in reducing the agency cost and information asymmetry. What’s more, this part describes the specific ideas of all the paper, and it is showed clearly by two frame diagrams.Chapter2:Literature reviewThis chapter reviewed the literature of home and abroad separately, either domestic or abroad scholars were focused on the impact of the independence of the board and two positions setting on the accounting conservatism, and the results are still controversial. What can not be ignored is that the academic research about the impact of gender diversity of board on accounting conservatism is rather rare. This chapter provides theoretical basis for the topic of this thesis as well as the choice of explanatory variables.Chapter3:Theoretical analysisThis chapter includes3parts:concept analysis, theoretical basis and analysis of the relationship between the board characteristics and accounting conservatism. Two basic theory are used in this paper:principal-agent theory and information asymmetry theory. Both of the two theories can explain the effects that the characteristics of the board acting on the accounting conservatism of enterprises. So this part provides an important theoretical basis for the article.Chapter4:Research designThis chapter includes3parts:hypothesis, sample selection, variable selection and the empirical model. Through theoretical analysis, this paper puts forward8assumptions. And according to the needs, this paper introduces two models:the improved Basu(1997) model and the Khan and Watts (2009) C-score annual conservatism index model. Different models have different explanatory variables and explained variables. This paper will use the improved Basu(1997) model to test the existing of accounting conservatism in Chinese listed firms, and the C-score model will be used for testing the effects of board characteristics on the accounting conservatism in listed firms.Chapter5:The empirical results and analysisFirst, this chapter discusses the necessary descriptive statistics analysis of the explained variables, explanatory variables and control variables. About the analysis of the regression results, this paper confirmed the universal existing of accounting conservatism in Chinese listed firms, and compared with the state-owned listed firms, the level of accounting conservatism in private listed firms is higher. Through regression, this paper finds that the scale of board and the proportion of independent directors are negatively correlated to accounting conservatism level in listed firms, while the unification of chairman of the board and general manager, female directors and the shareholding proportion of the board are positively correlated to accounting conservatism level. And last, the number of board meetings, within a certain range, the number is negatively related to accounting conservatism level, while out of this certain range, the result shows no effect.Chapter6:Conclusions and suggestionsAccording to a series of normative and empirical research, the author finds the research conclusions of this paper. After the conclusions, this paper puts forward6suggestions from the strategy aspect to improve corporate governance level, enhance the level of accounting conservatism in Chinese listed firms, and finally protect the enterprise and the contract parties.The main contribution of this paper: (1) Selected the Khan and Watts (2009) C-score annual conservatism index model. Compared with other models, this one was less used by domestic scholars. Taking into account of the lack of systematic research on it and in order to enrich the research methods in this field, so this paper uses C-score model to test the impact of board characteristics on accounting conservatism.(2) Joined the female directors as board characteristics variables. So far, only a few articles have discussed the impact of gender diversity of board acting on accounting conservatism, and the author agrees that compared with male director, female director has her own personality, thinking and acting, more and more female directors have joined the board, their status growing fast. The introduction of relationship between female director related variables and accounting conservatism can confirmed the important role of female directors in improving the accounting conservatism level, and further more, improving the importance of female directors in practice field.