The effects of accounting conservatism on investment decision: Evidence from listed companies in China

Abstract

This study investigates the effect of accounting conservatism on corporate investment decisions in China. Specifically, we analyze how accounting conservatism affects a company’s investment decision-making. Furthermore, we examine the difference in this effect of accounting conservatism on investment decision between public and private companies. The results of the analysis are as follows. First, accounting for conservatism can suppress the occurrence of inefficient investments. In a full sample, a public company sample and a private company sample, it shows a negative relationship between accounting conservatism and excessive investment. Second, the deterrent effect of accounting conservatism on corporate inefficient investment in public companies is weaker than in private companies. With these results, we can conclude that even in a special environment like China, accounting conservatism can affect the investment activities of companies and this effect is different depending on the type of the company.

Keywords:

• Accounting conservatism
• investment decision
• public company
• China

Acknowledgements

This research was financially supported by Hansung University.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Kyunbeom Jeong

Haixin Ma received his M.S. degree from Hansung University.

Kyunbeom Jeong is an Assistant Professor at Hansung University, Korea. He received his Ph.D. degree from Korea Advanced Institute of Science and Technology (KAIST). His areas of interest include financial accounting, management accounting and accounting audit.