Proceedings of the 7th International Conference on Business, Management and Finance
Year: 2024
DOI:
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Accounting Conservatism and Investment Efficiency: Evidence from the Chinese Private Firms
Wai Yan Wong
ABSTRACT:
This project focuses on the limited research on private firms and their differences compared to public firms regarding corporate governance and financial reporting incentives. In emerging transition economies, private entrepreneurship plays a significant role as the economy transitions from government-controlled enterprises to a market economy. Private firms often have higher levels of concentrated ownership, information asymmetry, and leverage, making it interesting to investigate the relationship between conservatism and investment efficiency in these firms. China serves as the research setting for this project due to the substantial role played by private firms in the country’s rapid economic growth. The project aims to examine the relationship between accounting conservatism and investment efficiency in Chinese private firms over a six-year period. It hypothesizes that accounting conservatism improves investment efficiency, positively associated with investment for firms prone to underinvestment and negatively related to investment for firms prone to overinvestment. The project also explores the mediating role of the information channel and the moderating role of corporate governance in the relationship between conservatism and investment efficiency. The implications of this project are both theoretical and practical. By shedding light on the influence of information channels and financial reporting quality on the impact of accounting conservatism on investment decisions, it adds value to the accounting and finance literature. Additionally, the findings can provide insights for policy-makers and entrepreneurs in formulating favorable policies for private sector development, reducing financial institution reserve requirements, improving government services, and minimizing market-entry barriers for private firms.
keywords: Corporate governance, Accounting conservatism, Investment efficiency, Financial reporting incentives, Private firms, China, Transition economies