The effect of government industrial policies on corporate accounting conservatism |
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| Institution: | 1. School of Economics and Management, Southeast University, Nanjing 211189, China;2. Alliance Manchester Business School, University of Manchester, Manchester M13 9PL, UK;3. School of Management, Fudan University, Shanghai 200433, China;1. Memorial University of Newfoundland, Canada;2. Stony Brook University, USA;1. School of Management, Xi’an Jiaotong University;2. Department of Accountancy, City University of Hong Kong;1. Emeritus Professor, The University of Akron, United States;2. Department of Accounting & Finance, Coggin College of Business, University of North Florida, United States;1. Business School, Korea University, Seoul 02841, Republic of Korea;2. Lundquist College of Business, University of Oregon, Eugene, OR 97403, USA;3. College of Business Administration, Loyola Marymount University, Los Angeles, CA 90045, USA |
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| Abstract: | This study examines whether and how firms adjust their accounting conservatism in response to government support through industrial policies, which reduce firms’ dependence on external financing from the capital market. Based on China’s unique economic programme called ‘Five-Year Plan’ from 1991 to 2015, we observe a decline in accounting conservatism among firms covered by government industrial policies. The decline is more pronounced in covered firms, which face higher ex-ante financial constraints, and in the subsample of firms which receive higher government support. These findings are robust to alternative specifications of accounting conservatism and policy timing. Our evidence implies that government industrial policies can have unintended consequences for corporate financial reporting. |
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| Keywords: | Government industrial policies Accounting conservatism China’s Five-Year Plan M41 M48 O2 |
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