Institutional Investors' Shareholding And Accounting Conservatism

In recent years,China's A-stock market has begun to transfer from extreme retailing to institutionalization.In 2016,China's professional institutional investors held a 16.3%share of the value of the A-stock market,which has reached its peak since 2009.After a period of time,institutional investors have become important participants in China's capital market.Both theoretical and practical experience have shown that institutional investors,as important external investors independent of controlling shareholders and management,having many advantages compared to individual investors:strong investment strength,high shareholding ratio,rich investment experience,and high professional level.They have the motivation and ability to participate in corporate governance and to supervise corporate management behavior.The government places high hopes on institutional investors in improving the governance of listed companies,and has continuously issued relevant policies to regulate the behavior of institutional investors.With the gradual implementation of relevant national policies and regulations and the gradual increase in the number and size of institutional investors,institutional investors have increasingly exerted a governance effect on enterprises.However,based on the current imbalance in the institutional structure of institutional investors in China,institutional investors are often unable to truly exert their governance effects because their shareholdings are lower than the legal person or the cost of supervision is too high.Under such circumstances,institutional investors will passively choose companies with high governance levels to invest instead of actively participating in corporate governance.Some cases in reality illustrate the dual effects of institutional investors' choice of governance and participation in governance.Accounting conservatism refers to the asymmetry and timeliness of the company's response to "bad news" and "good news".Compared with "good news"accounting income reflects the "bad news" more timely,and it is an important reflection of the principle of prudence.Conservative accounting information helps to reduce information asymmetry between external investors and internal managers.As an important external investor,institutional investors need to obtain conservative accounting information to guide their investment behavior.There are also two ways for institutional investors to obtain conservative accounting information.Firstly,they actively participate in corporate governance and supervise management behaviors to prevent corporate management from disclosing unreliable accounting information in order to increase the accounting conservatism of the invested company;secondly,through passive choose governance,by analyzing the level of conservatism of corporate accounting information,directly select companies with high levels of conservatism to invest.So far,has the institutional investors of China's listed A-share companies realized their need for conservative accounting information by actively participating in corporate governance or passively choosing governance?The existing domestic literature only tests the one-way promotion effect of institutional investors on accounting conservatism,they only test the effect of institutional investors participating in governance,but does not distinguish between two effects of participation governance and choosing governance.This paper believes that institutional investors will not only play a role in participating in governance,but also exert a selective governance effect in order to realize their own demand for conservative accounting information.The relationship between institutional investors'shareholding and corporate accounting conservatism is not one-way and static causality,it is a dynamic endogenous relationship,they influence each other and promotes each other.On the basis of the normative analysis,this article takes the Shanghai&Shenzhen Stock Exchange listed companies on the A-share company as the research object and takes 2007-2016 as the period of the study to empirically test the relationship between institutional investors and accounting conservatism.First of all,this paper verifies that institutional investors not only play a part in the governance effect of accounting conservatism,but also play a role in the choosing of governance;Secondly,this article believes that whether institutional investors participate in the governance of listed companies to achieve the improvement of accounting conservatism,or through the analysis of corporate accounting to judge the conservatism of information needs to take a certain amount of time.Institutional investors have a "delay effect" in the participation of governance and selective governance effects on accounting conservatism;Thirdly,this article further divides institutional investors into transactional institutional investors and stability institutional investors.Because stable institutional investors hold a high proportion of shares and do not trade frequently,and pay more attention to the long-term profitability of enterprises,stable institutional investors pay more attention to the conservatism of corporate accounting information than to institutional investors.,it's ability to participate in governance and choose governance is stronger;Finally,this article makes a threshold regress for institutional investors shareholding and accounting conservatism,confirms the "threshold value" of institutional investor's shareholding in the promotion of accounting conservatism.When institutional investors hold more shares than "the threshold value ",the effect of institutional investors improve accounting conservatism will be declined.