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Managerial Power Characteristics and Accounting Information Quality

Author: WangYan
Tutor: PengShaoBing
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Managerial Power Characteristics Quality of AccountingInformation Financial Restatement Nature of Property Right
CLC: F233
Type: Master's thesis
Year: 2013
Downloads: 241
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Abstract


The nature of the capital market is information market. Participants in the capital market make decisions of investment according to the acquired information which helps them analyze the possible risks and benefits, so as to achieve reasonable and effective allocation of resources. Accounting information is one of the major sources of information for investors’ decision-making, and its quality determines the investment decision is correct or not. Therefore it is the important guarantee to protect the interests of investors, and plays an important role for effective operation of capital market.In the process of generating accounting information, enterprise managers play a very crucial role. According to the principal-agent theory and asymmetric information theory, and for lower transaction cost considerations, it is a natural arrangement that the accounting information is prepared and provided by the managers who are responsible for the day-to-day business activities of enterprises. Therefore, the most real accounting information lies in the hands of the managers, and the manager’s behavior to some extent will affect the information disclosed to the public. As power is one of the important factors which influence one’s behavior, it is bound to have impact on the quality of accounting information. Therefore, it is important to research the relationship between managerial power characteristics and the accounting information quality for protection of investors and development of the capital market.Ⅰ. Purpose of the ResearchBecause of the qualitative characteristics of accounting information quality, the empirical research usually establish model or index which will be inevitably influenced by subjective factors and calculation errors, so this kind of research may cause deviation to the research conclusion. Financial restatement is caused by previous accounting errors, which represents the previously published information were incorrect or misleading, so it is an evidence of the low quality of accounting information. From the Enron and WorldCom in United States to Green-Land in China, there have been a lot of financial restatements for the purpose of hidden debt and inflated profits before their financial scandals. Therefore, this article attempts to use financial restatements as a characterization of lower quality of accounting information, and find the relationship between managerial power characteristics and quality of accounting information. The research purposes are as follows:(1) Summarize the definition, features, measurement methods and influencing factors of the accounting information quality, and to judge the reality of information quality according the current situation of financial restatement in China’s listed companies.(2) Analyze and describe managerial power characteristics, and research its impact on the accounting information quality, which is the main purpose of this study.(3) Study the relationship mentioned above in different kinds of ownership nature in China, in order to further provide some empirical evidence for improving the accounting information quality of enterprises with different nature of property rights.Ⅱ. Content of the ResearchThe research line of this article is:first of all, on the basis of analyzing relevant theory and literature, review the definition, measurement methods etc. of accounting information quality, and analyze the theoretical basis and practical basis to use financial restatement as the measure of accounting information quality; Secondly, combined with the results of previous studies, divide the managerial power into four aspects:ownership power, structural power, expert power, and prestige power, to make theoretical analysis and hypothesis, and define related variables combined with the actual situation of listed companies in China; Then, after a screening process, select qualified listed companies as the research sample, prepare variable data, and empirically test the proposed hypotheses by grouping samples test, correlation analysis and Logit regression etc.; Finally, get conclusion on the basis of the theoretical analysis and empirical research, put forward related policy suggestions and find the limitation of this article.The structure of the paper is as follows: Chapter1:Introduction. Discuss the background, purpose, ideas and methods as well as the expected contribution.Chapter2:Literature Review. Review existing research results related with the accounting information quality and managerial power, and extend out the research purpose of this paper on the basis of literature review.Chapter3:Theoretical Analysis. This chapter will analyze the formation of managerial power, the motivation and opportunity of mangers’impact on accounting information on the principal-agent theory and asymmetric information theory etc.Chapter4:Analysis of Financial Restatements. This chapter analyzes the current situation of financial restatement of China’s listed companies, including the trends, contents and audit opinion. Then briefly describe the accounting information value of financial restatements.Chapter5:Empirical Research. On the basis of literature review and theoretical analysis, put forward four sets of hypotheses in consideration of companies with different ownership nature, define variables and build mathematical models. The sample of our research is China’s A-share listed companies in2008-2011. Considering that due to the company’s management in general is more, but not every could have a significant impact on accounting information, so this paper will be limit the scope of management to senior managers who could have great influence on accounting information quality. The dependent variable is the occurrence of financial restatements, and the independent variables are defined as stock ownership, CEO duality, professional titles and office term to measure the power characteristics of management in four areas. Meanwhile, the characteristics of the equity and governance, as well as other basic characteristics of the company are set as control variables of the model. In the research of companies with different ownership nature, we divide the samples into two groups. Finally we draw the main conclusions of this paper by grouping samples test, correlation analysis and Logit regression analysis etc.Chapter6:Conclusions. Combined with the previous theoretical analysis and empirical results, summarize the conclusions of this study, and make policy recommendations, as well as research analysis limitations.The conclusions of this study are as follows: (1) Through statistics and analysis of the financial restatement status, we can get an overall understanding on the quality of accounting information in China from the view of accounting errors. Although the number and proportion of financial restatements are decreasing year by year,95.6%of the financial restatements are related with the core subjects of profits and balance sheet, and nearly70%reduced the opening retained earnings; and non-standard audit opinion accounted for17%of all the restated companies, which was much higher than that of non-restated companies (6%). The presence of these material errors lead the financial report could not meet the needs of its users, which indicating that the accounting information quality in China is quite worrying.(2) It is found that various nature and sources of managerial power have different influences on the quality of accounting information, and the difference is diverse with different ownership nature. As a whole, the ownership power and the expert power have positive influence on the accounting information quality, while the structural power had a negative impact. In the case of distinction between ownership natures, the structural power played a negative role in state-owned enterprises but the ownership power and expert power had positive impact on the accounting information quality in non-state-owned enterprises.Therefore, it is obviously that various power characteristics in different ownership nature will have different impacts. However, the current research is often combining the power characteristics of the managers and other corporate governance characteristics as a whole to measure the managerial power and leading into the conclusion of its negative impact. It is believed that in the modern enterprise, the managers have appropriate powers is the basis for effective operation and management activities, and the expansion of the managerial power usually on the condition of the internal governance defects and lack of appropriate constraints. Therefore, it is not appropriate to generalize different kinds of managerial power, and we should make distinctions among the specific ownership nature and the specific power characteristics to restrain and develop the managerial power.Ⅲ. Expected ContributionIt is with a certain degree of innovation to research the managerial power characteristics’ influence on the accounting information quality. It is expected to have certain positive means for improvement of the governance of listed companies in China, and the quality of disclosure in the capital market.Taking the occurrence of financial restatement as measure of accounting information quality, to a certain extent solved the qualitative problem of it, and also avoided the subjective influence and calculation errors. As a consequence, the method used in this article expanded the approach and ideas of the accounting information quality measurement.Research the possible different relationship between managerial power characteristics and accounting information quality in corporations with different ownership nature. The state-owned enterprises have significant differences with non-state-owned enterprises because of the institutional background and the history of development, which demonstrated in ownership structure, governance characteristics etc. It is necessary and useful to inspect and discuss the relationship mentioned above respectively, which may help us apply research results to the different nature of the enterprise better.

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