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Wage and Accounting Conservatism: Evidence from China

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  • Yongjian Shen
  • Shangkun Liang
  • Donghua Chen

Abstract

Whereas employees want their wages to stay at a sustainably high level, managers want to cut labor costs. This contrast may lead to different accounting conservatism preferences between the two parties. We use Khan and Watts’ (2009) C score model to examine the effects of wage amount and rigidity on accounting conservatism. We find that the degree of accounting conservatism is positively correlated with (1) the amount of wages, (2) the rigidity of wages and (3) the number of employees. In addition, our results also show that conservatism has increased since the enactment of the Law of the People’s Republic of China on Employment Contracts in 2008. This paper connects two different fields (wage and accounting conservatism) and expands on contracts related to the conservatism raised by Watts (2003).

Suggested Citation

  • Yongjian Shen & Shangkun Liang & Donghua Chen, 2013. "Wage and Accounting Conservatism: Evidence from China," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 1(1), pages 32-46.
    • Handle: RePEc:taf:rcjaxx:v:1:y:2013:i:1:p:32-46
    DOI: 10.1080/21697221.2013.781769
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    Cited by:

    1. Yu, Zhen & Luo, Juncheng & Fan, Jinqi, 2024. "Bank loan approval standards and firms’ accounting conservatism: Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PB).
    2. Dou, Huan & Pang, Xinyuan & Ke, Huan & Liu, Yuanyuan, 2024. "Pain or gain? The effects of transportation infrastructure on labor costs in China 1," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 413-431.

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