The Empirical Research On The Impact Of Accounting Conservatism On The Investment Efficiency Of Listed Companies

As the driving force behind sustainable profits and development, investment efficiency has become the focus of all business enterprises. Asymmetric information in capital markets has created synthetic financial constraints, causing companies to deviate from an optimal investment level and has created a phenomenon of over and under-investment. Adherence to the basic principles of accounting conservatism and prudence, can improve the quality of corporate accounting information help to alleviate, if not eliminate, information asymmetry and agency conflicts while helping to improve investment efficiency. This purpose of this paper is to examine the impact of accounting conservatism on the investment efficiency of listed companies in hopes of enhancing the potential efficiency of future investments.The data used for this research was the stock market return data from the Shenzhen and Shanghai A-share listed companies over the time period from 2010 to 2014. Using this data we have applied the "C Score" from Khan and Watts (2009) as a measure of the level of accounting conservatism level in combination with the investment efficiency measure proposed by Richardson (2006) to identify under and over-investment to find a relationship between accounting conservatism and corporate investment efficiency. This is done with the goal of gaining deeper insight into the function of stability in the special institutional and economic environment facing Chinese business enterprises and to further investigate the effects that ownership type (state owned versus privately owned) have on accounting conservatism and investment efficiency.This article is divided into six main parts:The first part is an introduction explaining the background research, the purpose and significance of the subject, and the content and methodology of the research.The second section is divided into research from both domestic Chinese and foreign scholars on the subject and outlines the existing research and results.The third part is an analysis of the underlying theory which forms the groundwork for this project, first introducing the theoretical influence of investment efficiency and then on the theoretical relationships between accounting conservatism and investment efficiency.The fourth part first outlines the data samples used in the research and focuses on the design model for the proposed hypothesis, the accounting measurement methods to determine the soundness and efficiency of investment, and models used to quantify accounting robustness and efficiency of investment relations.The fifth section presents a three-pronged empirical approach that employs a model to quantify and estimate the degree of accounting conservatism, the degree of over-investment, and the expected efficient level of investment.The sixth section proffers a conclusion as well as some recommendations for improvement and countermeasures based on the results of the findings.Our research points to three primary conclusions:First, the companies listed on the Shenzhen and Shanghai stock exchanges app ear to have relatively stable and conservative accounting but also tend to suffer from under-investmentSecond, there exists an inverse relationship between the level of accounting conservatism and the degree of over-investment in a company, such that the most conservative companies suffer a greater degree of under-investment than their less conservative counterparts.Third, the relationship between accounting conservatism and investment efficiency is less pronounced within state-owned enterprises (SEO).