Empirical Research Of Investor Sentiment’s Impact On Accounting Conservatism

With the intensified financial crisis, the market anomalies continues to emerge, traditional economic theory has been insufficient to explain the occurrence of these anomalies. In the late twentieth century, Behavioral Finance Theory emerged. In this theory, investors will be defined as irrational. Their decisions will be affected by their cognition, attitudes and some psychological factors that will generate market effects. Investor sentiment as an important part of Behavioral Finance will affect the behavior of investors and managers the choice of accounting policies. Conservatism principle has been one of the important criteria in the evaluation of accounting information. In recent years, Asymmetric Information in the current market becomes more apparent, due to the effect of limiting executive self-interest of opportunistic behavior, the academic research on conservatism becomes more and more. Affected investor sentiment, the management company will cater to investor sentiment to manipulate accounting information, that will affect the accounting conservatism. In the context of the separation of ownership and control, this paper studies that investor sentiment impacts on accounting conservatism, the use of the combination of normative and empirical analysis for protection of investors and development of the capital market.Firstly, this Paper arranged and analyzed the internal and external situations of investor sentiment and accounting conservatism, explain the concepts and theoretical basis. this paper use the Principal-agent Theory, Asymmetric Information Theory and Contract Theory, to text the impact of investor sentiment on accounting conservatism, proposes study hypotheses; Secondly, based on the literature review of the impact of investor sentiment on accounting conservatism, this article selected the data of A-share listed companies in Chinese stock market from2007to2012as observations. The measurement of investor sentiment and accounting conservatism are based on BW index and Basu model, empirically test the proposed hypotheses by descriptive analysis, correlation analysis and regression analysis; the findings are as follows, when investor sentiment increases, managers will reduce accounting conservatism in order to cater for optimistic sentiment; when investor sentiment decreases, managers will increase accounting conservatism in order to cater for pessimism sentiment. Finally, according to the results of empirical tests, the paper puts forward some suggestions for perfecting the impacts of investor sentiment on accounting conservatism.