Accounting Conservatism, R&D Manipulation, and Corporate Innovation: Evidence from China

Yi Shen and Qingsong Ruan
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Yi Shen: School of Economics and Management, Tongji University, Shanghai 200092, China
Qingsong Ruan: School of Economics and Management, Tongji University, Shanghai 200092, China

Sustainability, 2022, vol. 14, issue 15, 1-25

Abstract: Research and development (R&D) is the main driver for the sustainable development of corporate innovation. Given the prevalence of information asymmetry in R&D, executives opportunistically manipulate R&D investment. While accounting conservatism as a corporate governance mechanism can effectively reduce information asymmetry, few studies have focused on the relationship between the two. Based on Chinese listed companies in 2008–2019, this paper investigates the impact of accounting conservatism on R&D manipulation, as well as the moderating effect of internal control quality and tax enforcement efforts on this relationship. The results indicate that not only are the results more significantly negative in subgroups of low-level internal control and tax collection, but the coefficients of their cross-sectional variables are also positive. Therefore, accounting conservatism can effectively deter R&D manipulation, and this effect is weakened by internal control and tax enforcement. Additionally, the impact of accounting conservatism on manipulation differs in direction and lifecycle. The negative conservatism–manipulation relationship is more significant for upward manipulation and growing enterprises. Further research also suggests that conservatism’s inhibitory effect on R&D manipulation is mediated by financial constraints, which enhances corporate innovation efficiency. The conclusions not only provide empirical evidence for the corporation to improve R&D efficiency but also provide the basis for the authorities to promote innovation supervision.

Keywords: accounting conservatism; R&D manipulation; internal control; tax enforcement; corporate innovation (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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