Corporate Governance and Accounting Conservatism in China

A principal-agent relationship exists among creditors,shareholders and management,and information asymmetry among them leads to asymmetric loss functions,which induces conservative accounting.This paper investigates the determinants of accounting conservatism using accrual-based measures and data from 2001 to 2006 in China.We find that a higher degree of leverage,lower level of control of ultimate shareholders and lower level of management ownership lead to more conservative financial reporting.We also find that political concerns and pressures among state-owned enterprises are greater than those among non-state owned enterprises,which leads to more conservative financial reporting among the former.However,a decrease in such concerns leads to a decrease in accounting conservatism.Overall,we find that among the determinants of conservatism in China,debt is the most important,followed by ownership,and that board has little influence.

Accounting Conservatism:A Study of Market-Level and Firm-Level Explanatory Factors

This paper investigates the factors affecting the conservatism of accounting reports at the market-level and firm-level. At the market-level, law and institutional factors explain conservatism, while at the firm-level contracting is the driver. We predict and observe that while both levels jointly affect conservatism, it is firm-level factors that play a dominant role. The conclusion suggests that it is more effective to improve the quality of accounting reports by motivating the firm's own demand rather than through listing in a developed capital market.

The role of accounting conservatism in M&A target selection

Mergers and acquisitions(M&As)are among the most important investment activities for companies,but they contain great risks.We investigate the role of accounting conservatism in M&A target selection and risk.We find that for risk-averse reasons,firms with high accounting conservatism are likely to acquire profitable targets and avoid loss-making targets.When such firms acquire loss-making targets,the conservatism’s risk-control role reduces M&A risk and increases M&A performance,but only when control of the target is transferred and the acquirer has high long-term debt and low management power.Furthermore,accounting conservatism reduces risk by increasing the maturity match between cash flow and debt.Our results suggest that accounting conservatism plays not only a risk-averse role but also a riskcontrol role,providing new evidence for the usefulness of accounting conservatism in M&A decisions.

Does the system of independent directors help improve the quality of accounting information： From the perspective of earnings conservatism

Based on the sample data of the listed firms on the A stock market, we analyze how the system of independent directors influence the earning conservatism from 4 dimensions designed to measure the monitoring power of these independent directors： Percentage within BDs, professional capacities, stimulation and work conditions. From the empirical results, we conclude that the more powerful of the independent directors, the better the accounting conservatism, and that their positive impact increases along with the improvement on corporate governance, meanwhile the work conditions plays the most important role, and then are the percentage within BDs and their professional capacities, the stimulation and personal reputation appear the least importance.

Evaluation of the Conservatism Level in Kuwait Stock Exchange By Using Basu Model

This study aims to evaluate the level of accounting conservatism when preparing financial statements by companies listed in Kuwait Stock Exchange （KSE）. In addition, the study examines the factors that affect the level of accounting conservatism in those companies with regard to company sizes, debt contracts, and the type of sector the company belongs to. To achieve these goals, the Basu （1997） model was used to measure conservatism level and the factors influencing it. The sample of the study comprises of 225 companies listed in KSE. Findings of the study showed that the KSE succeeded in forcing Kuwait companies to present a reasonable level of accounting conservatism. The study also found out that the financial statements of small companies were conservative, while those of the big ones were not. In addition, the debt contracts left an impact upon financial reports of accounting conservatism. Thus, companies with lower debts were more conservative than those of higher ones. Moreover, the financial statements of the financial sector in KSE were the most conservative.

Analysis on the Background of Applicability of the Conservatism Convention

＂Conservatism＂ is a widely accepted accounting convention in the industrialized world, but it has long been slated and prohibited under the orthodox ideological influences. To date, the conservatism convention has not been fully adopted or implemented although the governments have made substantial efforts to reform its accounting system to bridge the gaps between the accounting practices in recent years. The study findings will facilitate a proper assessment of the future development of accounting standards and practices.