A Study On The Effect Of Managerial Entrenchment On The Choice Of Accounting Policy

Accounting policies regulate the generation of accounting information, and affect the distribution of business results. Accounting information provides decision support for information users, but also as the main basis of performance appraisal and compensation incentive. When managers who have the right to choose accounting policies are faced with the loss of personal interests, they will have the motivation to protect themselves and maximize their own benefits. Once there is a chance, the manager will intervene in the choice of accounting policies in order to defend. The existing literatures on the choice of accounting policy have been very rich, but from the perspective of managerial entrenchment, literatures are rare. From the perspective of managerial entrenchment, this paper explored the impact on the choice of accounting policy, enriching the research content of accounting policy choice, and developing the new application field of managerial entrenchment.After the literature review, the definition of related concepts, this paper theoretically analyzed the influence mechanism of managerial entrenchment on the choice of enterprise accounting policy, motivation of accounting policy choice from the perspective of managerial entrenchment and the space of accounting policy choice. In the process of empirical research,this paper selected 2007 - 2014 Shenzhen and Shanghai manufacturing data of A-share listed companies, through the construction of managerial entrenchment index found that the managerial entrenchment level of different types of enterprise was significantly different. Then,this paper took three accounting policies (capitalization of R&D expenditures, provision for impairment of assets) as examples, explored the influence of managers’ factors and internal control mechanism on the choice of enterprise accounting policy. Empirical results showed that:(1) The listed company managers’ salary, gender, age, shareholding ratio of managers and whether the two jobs were significant influence on two accounting policy. (2) The term of state-owned enterprise managers was examined, but the term of non-state-owned enterprises managers had not been examined. (3) The qualifications of managers of listed companies had not been examined. (4) Compared with the long-term asset impairment accounting policy, the managers of listed companies preferred to adopt the method of accounting for the impairment of current assets.Finally, combining with the enterprise internal control mechanism, enterprise external policy environment and mixed ownership reform, this paper put forward six suggestions in order to restrain the act of manager’s deliberate choice of accounting policy for managerial purposes. The limitations of this study were: the samples are only divided into state-owned and non-state-owned enterprises to carry out research, without considering the influence of other factors such as industry; research on the accounting policy for a single accounting policy,without considering the combination of accounting policy choice; time span of the study sample is large, there may be errors in manual process of data. All these limitations will have a certain degree of influence on the conclusions of this paper.