Accounting conservatism as a strategy to deter entry: Evidence from China's Negative List System

Zehua Xiao and Yitong Zhao

International Review of Financial Analysis, 2024, vol. 93, issue C

Abstract: This paper examines the market force and real effect of accounting conservatism from the perspective of an entry game. Using China's Negative List System (NLS), a nationwide deregulation policy resulting in a significant increase in new business registrations of new entrants, we find that incumbents affected by the NLS, especially those at competitive frontiers within an industry, increasingly adopt accounting conservatism in reaction to the NLS-induced market changes. Additional tests indicate that the underlying mechanism lies in the imposing threat of entry, effectively ruling out the alternative explanations related to corporate governance. Moreover, we observe that industries exhibiting a higher inclination towards conservative accounting tend to be less susceptible to new entrants. This finding suggests that the adoption of accounting conservatism could be interpreted as a tactical measure to deter new entrants.

Keywords: Deregulation; Accounting conservatism; Deterring of entry (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924000759
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924000759

DOI: 10.1016/j.irfa.2024.103143

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().