Property Background, Creditor’s Governance And Accounting Conservatism

One of the most important functions of accounting is to provide stakeholders with information useful for decision-making, help them understand the enterprise’s overall financial status, operating results and other issues, and facilitate their decision. From this point, we can know that the role of accounting information is to facilitate the decision. The concise and to the point, and decision related features of accounting information determines its important position in the enterprise information delivery mechanisms, also make the enterprise stakeholders have paid enough attention to it. Thus, problems related to the quality of accounting information have become an important research field of the accounting profession. About what kind of accounting information have high quality, how to ensure that the accounting information has high quality and what economic consequences accounting information with different quality will bring out have been raised and discussed in the theory circle and practice circle continuously. As a part of information quality, accounting conservatism also has gained great attention.In essence, accounting conservatism is an unequal principle in confirming different messages:to confirm "good news" should be more cautious than "bad news". It represents a careful and prudent accounting attitude. Although the definition of accounting conservatism makes it have advantage to be accounting principle, from birth to being one of accounting principles, its development is not smooth sailing. It was produced by an accountant from British who held a conservative accounting attitude in order to escape responsibility and protect himself. After a long-term examination, it was gradually accepted. At beginning, FASB treated accounting conservatism as an accounting attitude, and did not accept it completely. In China, accounting conservatism was banned after the founding until Sino-foreign Joint Venture Accounting System was carried out. Nowadays, accounting conservatism is regarded as an important part of accounting information quality, and one of the main measures to ensure the asset quality. Due to the important role of accounting conservatism, many scholars have conducted extensive research on it. But those studies initially were just theory researches, and the majority of them talked about the existence of accounting conservatism. On the basis of the past literatures and his own analysis, Watts (1993) presented related problems of the accounting conservatism systematically. He also put forward that one of the main factors affects the accounting conservatism is contract. His research results guided the direction of research on accounting conservatism for later scholars. Basu (1997) solved the problem about measurement method of accounting conservatism, providing the possibility for the empirical research of accounting conservatism. Those two scholars’ contributions prompted the process of empirical study on the conservatism.By sorting out the literatures of accounting conservatism, this paper found that the current studies mainly focus on the measurement methods of conservatism, the existence of conservatism, the motivation of conservatism and the economic consequences of conservatism. This paper found that:1. The earliest scholar who worked out the measurement method of accounting conservatism is Basu (1997), constructing the earning-return model by considering conservatism’s operation that confirming different messages applies different principles. Later scholars’models were mostly designed on the basis of this model. Basu’s model is commonly used in the studies of conservatism in China.2. The existence of accounting conservatism has been confirmed in foreign countries. It has also been confirmed in China, while this conclusion is questioned by many domestic scholars by thinking that this illusion is caused by earning management. At the same time, the accounting conservatism present differences in different time and different area.3. The main motivations of accounting conservatism are contract, litigation, regulation and tax, and contract is the most important one. Considering the contract motivation, scholars generally believe that debt contract is the main one, and equity contract has little influence.4. Accounting conservatism mainly affects enterprise financing and investing activities. The impact on financing activities are mainly embodied in the financing cost, and the impact on investment activity is divided into two aspects:on one hand, it can reduce the investment risk enterprises will take, on the other hand, it will lead enterprises to waste potential excellent investment opportunities.In addition, this paper found that:despite many current domestic researches on conservatism, because the time is short, most of the researches on conservatism are tasted, and few scholars do a deeper research on one point. From this point of view, it has great theoretical and practical value for in-depth study on the conservatism of each specific problem. The debt contract has been regarded as the main motivation of accounting conservatism, and creditor governance is also an important topic in modern corporate governance theory. China’s special institutional background is also a worthy research direction. Therefore, from this perspective, combining China’s special institutional background, this paper did an in-depth study on the debt contract motivation of accounting conservatism, hoping to discover the more specific motivations of accounting conservatism by researching the background of enterprise property rights, debt maturity structure and debt types.In this paper, the main content is arranged into five parts:introduction, literature review and theoretical analysis, research design, empirical research and conclusion. In the introduction part, the basic situation of the paper are briefly introduced, including the research background, research significance and the frame; in the literature review and theoretical analysis part, this paper reviews and summarizes the relevant literature, and analyzes the theoretical basis that the article required; in study design part, the regression model in this paper, related variables and the study sample are confirmed; in empirical research part, the related data are descriptive statistics, and the regression results of model are analyzed; in the conclusion part, combined with the regression results, this paper gives the conclusion of this article, and put forward constructive suggestions, the summary and outlook.Based on literature review and theoretical analysis, this paper puts forward the hypothesis:Hypothesis1:the creditors’ governance will make the enterprise accounting policy more conservative; Hypothesis2A:China’s state-owned enterprises’ accounting conservatism is lower than the private sector; Hypothesis2B:state-owned background of Chinese enterprises will weaken the effect of creditor governance on accounting conservatism; Hypothesis3A:short-term debt creditor governance on enterprise can make the enterprise accounting more conservative; Hypothesis3B:relative to short-term debt, long-term debt creditors of the corporate governance role is not obvious; Hypothesis4:relative to guarantee loans, banks’governance role in credit loan object to effect conservatism is less obvious.The main idea of this paper is based on the literature review and theoretical analysis, using STATA software doing the panel regression on the data to test the hypothesis, and with the combination of regression results giving some conclusions. The conservatism model used in this paper is the earning-return model which Basu designed, as the choice of most of the domestic scholars. In this paper, the data comes from the CSMAR database, the selected samples is listed companies of A shares from2009to2012. By eliminating the financial enterprises and missing data, we obtained6579samples.Through descriptive statistics on the sample, this paper mainly found that:at present, the main financing way in the capital market of our country is short-term debt and guaranteed loan, and credit discrimination phenomenon is obvious; the volatility of the stock is much bigger than the accounting income. In addition, based on divided sample descriptive statistics, this paper found that:the market has better response for state-owned enterprises than private enterprises; state-owned enterprises have more advantages than the private sector in financing channels, and they can obtain more finance, especially long-term debt and credit.Through the analysis of panel data regression results, this paper verified the hypothesis. This paper also did robust test to the regression results in a variety of ways, and the test results showed that the empirical results are basically stable. Verifying the hypothesis, this paper puts forward the following conclusions:First, our country’s enterprise accounting is conservative, and the appearance is significant;Second, creditors in the capital market of our country could govern the enterprises through the debt contract, and the governance effect is obvious from the overall perspective;Third, the special background of Chinese state-owned enterprises will lead to damage the accounting conservatism, and those conservatisms are obviously lower than the private sector. At the same time, government intervention, government protection and other phenomena existing in the state-owned enterprises will reduce creditors’ demand of conservatism and supervision binding. Further, the state-owned property background will weaken the governance role on the conservatism of the creditor;Fourth, in the debt contract motivation of Chinese conservatism short-term debt contract played the main role, while long-term debt contract has little effect on conservatism. Governance effects of short-term debt creditors on conservatism are better than long-term creditors;Fifth, as the most influential creditor in China, the banks’governance effect on the conservatism of enterprises with guaranteed loans is better than enterprises with credit loans. But the guaranty may weaken the banks’ demand of conservatism in enterprises with guaranteed loans.While obtaining certain result, this paper also has shortcomings:the period of the data this article selects is short and may be not good for comprehending the problem; the financial crisis may have some impact on our country’s capital market and the accounting profession, which this paper has not carried on further investigation; with lack of data of guaranteed loans and credit loans, the analysis on hypothesis4may be biased; because there is no special designed model about China, it may have some influence on the conclusion.In view of the conclusion and deficiency, this paper puts forward the outlook: the domestic authoritative scholars in this field find out new measurement method of conservatism suitable for our country, in order to verify the hypothesis further; teasing out the changes in the course of accounting conservatism, and the creditor governance function in the process of change about accounting conservatism role; from the other aspects of the conservatism analyzing the debt motivation, such as the cost of debt, the way enterprise gets the debt.