Empirical Research On The Effect Of Employee Compensation On Conservatism

As the development of market economy and the information dissemination, the uncertainty of information in accounting has become more and more important. The stake holders has paid more attention to and has more need for the quality of accounting informa tion due to protecting their own interests. As one the principles in accounting, conservatis m has been paid more and more attention by domestic theoretical circle. At present, especially in western countries, scholars gradually link labor union and accounting conservatism together. It is not the mature time to use union as research starting point because the union is weak in China. And the employee compensation is more direct and appropriate because it is on behalf of the fundamental interests of employees. This paper researches how employee compensation affects conservatism using the factor of employee compensation as starting point. This paper researches how endowment insurance affects conservatism tentatively. The endowment insurance is an important part of employee compensation and has been paid more and more attention by companies and employees. It is very important to research the relationship between endowment insurance and conservatism.The previous studies show that the factors which can affect conservatism include contract, litigation, government regulation and tax. The contract is the most important factor which includes debt contract, management compensation contract and employment contract. This paper finds that the compensation contract between employees and companies(include endowment insurance) is one of the factors which can affect conservatism. From the prospect of employees, the more compensation employees get, the more management risk, financial risk and bankruptcy risk the companies will be faced, and the employee need more conservatism. The employee will need more accounting information with conservatism due to the consideration of the stability of future compensation. From the prospect of companies, the management will provide accounting information with conservatism due to they care their official career and the negative aspect of high cost. So from the prospect of employees and companies, the more compensation employees get, the level of accounting conservatism will be higher.This paper which uses C-score model(Khan and Watts,2009)as the measurement of conservatism and use China’s A-share listed companies in Shanghai and Shenzhen stock exchange in 2009-2013 data as samples tests the relationship between employee compensation and conservatism and the relationship between pension and conservatism systematically. Non-state-owned enterprises employee compensation and pension can affect conservatism more significantly than state-owned enterprises.