Abstract

http://ssrn.com/abstract=2103957
 
 

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Accounting Conservatism, Ultimate Ownership and Investment Efficiency Improvement


Xiaodong Xu


Shanghai Jiao Tong University (SJTU)

Xia Wang


East China Normal University (ECNU) - School of Business

Nina Han


Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

July 11, 2012

China Finance Review International, Vol. 2 No. 1, 2012

Abstract:     
This paper examines the role of accounting conservatism on firm investment behavior in China. We find that the association between accounting conservatism and capital expenditure is significantly positive when inside capital is not enough to use for investment, suggesting that conservatism can expend the level of investment by decreasing information asymmetry and cost of capital; However, the association between accounting conservatism and capital expenditure is significantly negative when inside capital is enough to use for investment, suggesting that conservatism can curtail the level of investment by mitigating the interest conflicts between management and outside shareholders and decreasing agency costs. Additionally, we find that the severity of information asymmetry and agency problem affects the role of accounting conservatism on firm investment behavior, the association between accounting conservatism and capital expenditure is weaker for firms with ultimate ownership controller as local government or individuals.

Number of Pages in PDF File: 25

Keywords: accounting conservatism, investment, information asymmetry, agency cost

JEL Classification: G31, M41, O16

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Date posted: July 17, 2012  

Suggested Citation

Xu, Xiaodong and Wang, Xia and Han, Nina, Accounting Conservatism, Ultimate Ownership and Investment Efficiency Improvement (July 11, 2012). China Finance Review International, Vol. 2 No. 1, 2012. Available at SSRN: http://ssrn.com/abstract=2103957

Contact Information

Xiaodong Xu (Contact Author)
Shanghai Jiao Tong University (SJTU) ( email )
KoGuan Law School
Shanghai 200052
China
Xia Wang
East China Normal University (ECNU) - School of Business ( email )
Shanghai 200041
China
Nina Han
Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )
No. 535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China
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