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Information Asymmetry、Accounting Conservatism and Minority Shareholders Profit Protection

Author: XuZuo
Tutor: ZhouXiaoSu
School: Nankai University
Course: Accounting
Keywords: accounting conservatism minority shareholders profit protection information asymmetry controlling shareholders’ motivation of tunneling institutional settings
CLC: F233
Type: PhD thesis
Year: 2012
Downloads: 89
Quote: 0
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Abstract


The minority shareholders are the most dominating participant in the securitiesmarket, and they are important to keep securities market on running and developing.It is the level of minority shareholders profit protection that can influence ordetermine the extent of the securities market’s development. Information asymmetryis the lesding reason that leading to the loss of minority shareholders, and which alsois the hotspot problem in investor profit protection studing. As the part of the investorprofit protection system, financial accounting can alleviate information asymmetry byproviding high-quality accounting information to investors. Does accountingconservatism can protect the profit of minority shareholders and how can it do? Theseproblems are not attached importance to and studied systematically, althoughaccounting conservatism is a traditional and widely-applied characteristic ofaccounting information quality. This research establishes an analytic framework ofthe relationship of accounting conservatism and minority shareholders profitprotection based on the information asymmetry theory, investor profit protectiontheory, the role of accounting information on investor profit protection and the currentsituation of Chinese securities market and the institutional settings of minorityshareholders profit protection in China. Under the framework, this research studiesthe mechanism and economic consequence that how does accounting conservatismhelp minority shareholders to resolve adverse selection, and the influence onaccounting conservatism of Chinease listed company by the controlling shareholders’motivation of tunneling and the institutional settings. This research use the C_Scoremodel which provided by Khan and Watts in2009to measure the firm-year levelaccounting conservatism, and test the economic consequence and influencing factorof minority shareholders profit protection by accounting conservatism based on thetheoretic analysis.The main conclusions of this research are as follows:The result of studing the mechanism of minority shareholders profit protection by accounting conservatism is that accounting conservatism can help minorityshareholders to resolve adverse selection by two kind of method. Fistly, accountingconservatism can enhance the confirmability of current accounting information,which can help minority shareholders to value the firm’s price accurately and makeinvestment decision correctly. Becaurse the profitability reflected by conservativeaccounting information is more confirmable, and it is more related to the future priceof firm. If minority shareholders value firm’s price based on such information, it isless possible to make mistake. Secondly, accounting conservatism can increase theamount of the bad news that is released, which ensures that minority shareholdersrealize all kinds of bad news that may damage firm’s valuation before they make theirinvestment decision. Managers have a general tendency to strategically withhold ordelay the disclosure of bad news and accelerate the release of good news, andaccounting conservatism demand the recognition of bad news is faster than goodnews, which can deliver the bad news to minority shareholders more timely, as aresult, minority shareholders would not suffer loss for hiding of bad news bymanagers.The results of studing the economic consequence of minority shareholders profitprotection by accounting conservatism are as follows. Firstly, there is a positiverelation between current profit and future stock price returns when the firm is moreconservative, especially for the sample of higher earnings or the sample of higherlevel of information asymmetry. This result means that accounting conservatism playsthe role of advancing the confirmability of accounting information, which can helpminority shareholders to value the firm’s price accurately. Secondly, there is anegative relation between accouting conservatism and the probability of stock pricecrash, especially for the sample of higher level of information asymmetry. This resultmeans that accounting conservatism can protect minority shareholders by increase theamount of the bad news that is released.The results of studing the influenced factors of minority shareholders profitprotection by accounting conservatism are as follows. Three is no positive relationbetween accounting conservatism and the level of information asymmetry, whichmeans that the level of accounting conservatism of Chinese listed company is not high enough to satisfy the need of minority shareholders profit protection. Thecontrolling shareholders’ motivation of tunneling reduces the level of accountingconservatism for the sample of higher level of information asymmetry, which meantsthat the information asymmetry is in company with the controlling shareholders’motivation of tunneling decreasing the supply of accounting conservatism. We canrestrain the negative impact from controlling shareholders by consummating theinstitutional settings.The innovations of this research are as follows:Firstly, this research combine accounting conservatism with the minorityshareholders profit protection, which expand the extent of investor protection studies.The exiting articals mostly study the creditor profit protection by accountingconservatism, this paper analyses the minority shareholders profit protection byaccounting conservatism through lessening the information asymmetry.Secondly, analyse and test the economic consequence of minority shareholdersprofit protection by accounting conservatism by testing the relationship betweencurrent accounting conservatism and future stock price returns and the relationshipbetween accounting conservatism and the probability of stock price crash. This partcontributes to the literature on the economic consequence of accounting conservatism.Finally, this research studies the impact of the controlling shareholders’motivation of tunneling and the institutional settings on accounting conservatismfrom the respect of minority shareholders profit protection, and this part contributesto the literature on the influenced factors of accounting conservatism.

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CLC: > Economic > Economic planning and management > Accounting > Accounting Organization and system
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