Relationship Between Accounting Conservatism And Inefficient Investment Of Enterprises And How Senior Executives With Banking Background Affect It

Effective investments can lead to long-term stable development of enterprises.However,inefficient investments,such as under-investment and over-investment,commonly exist in many enterprises because of two reasons.One is the principal-agent regime based on the separation of capital ownership and capital operation.The other is the information asymmetry between internal and external creditors of enterprises.Accounting conservatism is one of the indicators to evaluate the quality of accounting information in enterprises,which can enable enterprises to timely confirm liabilities and losses,and prevent overvaluation of assets and benefits.Therefore,it guarantees the quality of financial reports which are used for estimating the operation conditions by the owners and creditors of the enterprise to a certain extent,helps enterprises alleviate the problem of agency conflict and information asymmetry,and further solves the problem of inefficiency investment of enterprises.Presently,foreign scholars had proved that accounting conservatism can improve the inefficiency investment of enterprises by alleviating the principal-agent and information asymmetry between the two contractual sides.But there are also some scholars put forward opposite views.Then,in the transitional period of Chinese economy,the use of accounting conservatism policies can really improve the inefficiency investment of our enterprises keeps unknown.According to the Upper Echelons Theory suggested by Hambrick and Mason(1984),senior executives' personal characteristics such as age,gender,education backgrounds and professional experiences will affect their cognitive and behavioral preferences,further affect the choice of the policies and developments of enterprises.In the current Chinese market,bank loan is one of the important channels of enterprises to obtain capital.Therefore,a large number of enterprises will choose to hire senior executives with banking background to establish a close relationship between themselves with the banks.So how do these senior executives with banking background have an influence on the policy choices of the enterprises? At present,most of the researchers focus their analyses on the relationship between accounting conservatism and inefficiency investment of enterprises,but few analyze how the senior executives with banking backgroundhave an effect on the relationship between them.For this reason,the main purposes of this paper are:(1)to analyze the impact of accounting conservatism on the inefficiency investment of enterprises.And(2)based on(1),to analyze the mechanism of the influence of senior executives with banking background on the relationship between accounting conservatism and enterprises' inefficiency investment.In this paper,the data of 1499 A-share listed companies from 2011 to 2016 are selected for empirical analysis.The following conclusions are drawn:(1)Accounting conservatism not only can alleviate the enterprises' excessive investment problems,but also can aggravate the enterprises' insufficient investment.(2)In the case of excessive investment,senior executives with banking background tend to adopt accounting conservatism policies to obtain information timely in order to prevent enterprises to expand and invest in the projects with negative net present value.At this point,they play the role of supervisor,which means that they can increase the inhibiting effect of accounting conservatism policies on enterprise investment.(3)While in the case of inadequate investment,they are more like “resource supporters” that help enterprises get funds.In this way,the creditors' requirements for the enterprises to adopt the accounting conservatism policies can be reduced,which means that they weaken the effect of them on the aggravations of insufficient investment of the enterprise.(4)By hiring senior executives with bank background,the negative effect on the efficiency of investment caused by accounting conservatism can be improved.This will certainly improves the inefficiency investment and then enhance the enterprise value.On this basis,two suggestions are put forward here.On the one hand,as the use of accounting conservatism policies will aggravate the investment insufficiency of enterprises,senior executives should not blindly pursue the use of them without considering the company's own situation.On the other hand,in the different operating conditions of enterprises,senior executives with bank backgrounds play different functions,which can help to improve the effect of accounting conservatism policies on the aggravation of under-investment of enterprises.Therefore,enterprises should strengthen the introduction of senior executives with bank working background to improve the construction of enterprise management team.