The Study Of The Impact Of Cost Stickiness On Accounting Conservatism

Conservatism principle, also know as principle of prudence is one of ratherimportant principles for qualitative characteristics of accounting information of ourcountry and measuring authenticity and responsibility of financial reports. Asconservatism principle plays an important role in the accounting practices’circumstance and the process of constituting accounting standard of our country, thestudy of the conservatism principle is more and more nowadays. Especially sincefinancial crisis erupts in2008, how to improve the quality of accounting informationhas become a worldwide focus. As one of important indicators for measuringaccounting information quality, conservatism principle has been a hot topic.With scholars’ depth study of cost behavior, cost behavior hypothesis intraditional accountants management has been questioned. In traditional accountantsmanagement, there is a linear relationship between office cost and business volume.However, after years of study of cost, scholars found that there is not a so-calledlinear relationship between office cost and business volume. Instead, when thebusiness volume increases, the marginal increase is greater than the marginalreduction when the business volume reduce. The conclusion which is completelydifferent from traditional accountants management is described as cost stickiness.According to economics theory of cost stickiness, managers usually considerwhether to reduce costs in their own self–interest when receipts from enterprises isreduced. However, upon careful study we find that managers are more tend tomaintain established scale of production relative to reduce costs. It is going to lead alarge increase in cost of enterprises, but in the long run, this management policy willhelp the enterprises much easier to be adjusted to the changing market environment,drum up staff morale, keep staff’s loyalty and stock returns moving up. This paperfinds that accounting earnings drop more when receipts from enterprises is reducedthrough analyzing of the cost stickiness theory. Therefore, the asymmetry reflects between accounting earnings and stock returns is significant because of cost stickiness.To test this idea, this thesis selects enterprises which don’t have missing data in2012-2013, listed IPO companies in current year, finance and insurance companies,ST companies and companies which total profit is negative as sample data based onanalyzing and summarizing the documents about conservatism principle and coststickiness both at home and abroad. Firstly, a regression relationship is established byBasu (1977) model and the existence of conservatism principle is certified throughdescriptive statistics, linear regression and sensitivity analysis. Secondly, a regressionrelationship, which uses selected sample data, is established by Anderson (2003)model and the existence of cost stickiness is certified through descriptive statistics andlinear regression. Finally, in order to make a concrete analysis of the influence of coststickiness on accounting conservatism, this paper has built the cost stickiness rate andused descriptive statistics, correlation analysis, linear regression and sensitivityanalysis from three important cost respects which is operating costs, period chargeand tax. The result shows that cost stickiness has a significant influence on accountingconservatism and they have a positive correlativity. The research on cost stickiness’influence on accounting conservatism is an important extension of research oneconomic consequences of cost stickiness and the important supplement of researchon reason of accounting conservatism. The results of this paper require our countryshould not only pay attention to accounting conservatism characteristics of accountinginformation’s influence on enterprises, the validity and normative of the process ofcost management in listed company need more attention.