Ownership Structure and Accounting Conservatism in China

Document Type



Published in the Journal of International Accounting, Auditing, and Taxation, volume 21 issue 1. Bryant users may access this article here.

Publication Source

Journal of International Accounting, Auditing and Taxation


Accounting conservatism can serve as a mechanism to balance the interests of managers and shareholders and to reduce the effects of information asymmetry. Much of the research examining conservatism has been conducted in Anglo-American settings, in which ownership is typically widely dispersed. In Asian countries, such as China, ownership structure tends to be more concentrated, and state owners are more prevalent. In this paper, we examine the relationships between ownership structure and conservatism in China. Three ownership structure issues are examined: the influence of the largest shareholder, whether the largest shareholder is the government, and the power and governmental status of minority shareholders. For companies with a large shareholder, management may serve the interests of this largest shareholder to the exclusion of the interests of minority shareholders, who generally prefer more conservative reporting. Consistent with this idea, we find that conservatism is negatively associated with the percentage of shares held by the largest shareholder, and that this effect is particularly significant when the ownership percentage exceeds 30%. We do not find that state ownership influences the relationship between the largest shareholder's ownership and accounting conservatism. However, we do find that privately controlled companies in which the state owns a minority interest are more conservative than those without material state minority ownership.