Accounting Conservatism Alleviates Firm’s Investment Efficiency: An Evidence from China

Abstract

Abstract:This study examined the association of accounting conservatism with investment efficiency, and its effects on investment efficiency by mitigating firms from under and over investments of listed companies in China (2002China ( to 2013. First, we find the existence of conservatism in accounting practices of Chinese firms, later to hypothesize that how conservatism improves investment efficiency to alleviate under or over investment stresses. Thus, our findings confirmed that accounting conservatism improves investment efficiency of Chinese firms by mitigating under (over) investments. Furthermore, significant correlation existed for investment efficiency with free cash flow and corporate governance such as CEO duality and percentage of board members. In robust test, we find conservatism reduces the CEO duality and top one shareholder tunneling effect which may cause agency problem.

The Effect of Accounting Conservatism on Investment Efficiency and Debt Financing: Evidence From Egyptian Listed Companies

“…This result agrees with the findings of prior literature that found that accounting conservatism reduced cost of debt and facilitated debt contracting process (Karthik, Watts and Zuo, 2016;Razzaq, Riu and Donghua, 2016;Lara, Osma and Penalva, 2016;Hong, Kim andLobo, 2017, Yasir, 2018). However, this result contradicts with other studies which found that conservatism might discourage managers to invest in high risk projects even with a positive net present value (Liu, 2014;Brockman, Liu and Ma, 2015;Ashfaq et al, 2016).…”

“…Thereby, conditional conservatism was considered an efficient mechanism in controlling and monitoring the opportunistic behavior of managers. Razzaq, Riu and Donghua (2016) indicated that there was a positive cone1ation between accounting conservatism and investment efficiency. Accounting conservatism reduces overinvestment problem through monitoring managers' decisions and decreasing free cash flow available for them.…”

“…The second view argues that accounting conservatism may increase risk aversion, thus, rejecting risky projects even if with a positive net present value and increasing underinvestment problem (Guay andVierrecchia, 2006, Liu, 2014;Ashfaq et al, 2016). In contrast, the third view argues that accounting conservatism may mitigate managers' underinvestment incentives by encouraging prudent investments (Ahmed et al, 2002;Karthik, Watts, and Zuo, 2016;Razzaq, Riu and Donghua, 2016;Hong, Kim and Lobo, 2017).…”

Conditional Accounting Conservatism Lessens the Cost of Capital: Evidence from Non-Financial Sector of Pakistan

“…Prior academic reported that conditional accounting conservatism is caused to lowers the cost of capital researchers (Francis & Martin, 2010). Most recent researchers studied that accounting conservatism has influenced on the cost of capital and their outcomes showed that accounting conservatism decreases the cost of capital (Lambert et al, 2007;Lara et al, 2009b;Razzaq, Rui, & Donghua, 2016). Therefore, current paper advances a postulate that conservative financial reporting lessens the cost of capital for the companies in emerging market.…”

Pengaruh spesialisasi auditor, maturitas utang, konservatisme Akuntansi, dan kualitas laporan keuangan terhadap efisiensi investasi

“…Penelitian tentang pengaruh spesialisasi auditor terhadap efisiensi investasi banyak dilakukan namun inkonsistensi hasil penelitian masih ditemukan, menurut (Elaoud & Jarboui, 2017) dalam penelitiannya menyatakan bahwa Spesialisasi auditor membantu menekan tingkat underinvestment pada perusahaan. Penelitian tentang konservatisme akuntansi sudah banyak diteliti namun masih adanya inkonsistensi hasil yang ditemukan oleh (Lara et al, 2016) menyatakan bahwa konservatisme akuntansi dapat meningkatkan efisiensi investasi dan tingkat hutang karena kemudahan pengawasan manajer, selanjutnya penelitian yang dilakukan oleh (Juliani & Wardhani, 2018) menyatakan bahwa konservatisme akuntansi berpengaruh positif terhadap efisiensi investasi, dalam penelitian (Razzaq et al, 2016) menyatakan bahwa Konservatisme akuntansi meningkatkan efisiensi investasi perusahaan China dengan mengurangi Overinvestment dan Underinvestment, berbeda dengan penelitian (Houcine, 2013) yang menyatakan bahwa Konservatisme tidak mempengaruhi efisiensi investasi pada perusahaan di Tunisia karena pengaruh perbedaan dasar hukum dengan Amerika. Selain konservatisme, kualitas laporan keuangan juga mempengaruhi efisiensi investasi, penelitian tentang kualitas laporan keuangan ini sudah banyak dilakukan namun masih adanya inkonsistensi dalam penelitian ini.…”