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Chinese Management Studies
Product market competition, regulatory changes, ownership structure and

accounting conservatism: Evidence from China
Muhammad Ansar Majeed, Xian-zhi Zhang, Zhaonan Wang,
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CMS
11,4 Product market competition,
regulatory changes, ownership
structure and accounting
658 conservatism
Evidence from China
Muhammad Ansar Majeed

International Business School, Zhejiang Gongshang University,
Hangzhou, China, and
Xian-zhi Zhang and Zhaonan Wang
School of Accounting, Dongbei University of Finance and Economics,
Dalian, China
Abstract
Purpose – This study aims to examine the impact of various dimensions of product market competition on
accounting conservatism particularly in the wake of regulatory changes and varying ownership structures in
China.
Design/methodology/approach – This study examines impact of product market competition on
accounting conservatism by using conservatism measure of Khan and Watts (2009) and measures for
important dimensions of competition such as competition intensity, non-price competition and competition
from existing rivals and potential entrants.
Findings – The findings suggest that competition intensity and non-price competition result in higher
conservatism. This study also advocates that industry leaders exhibit lower conservatism as compared to industry
followers. Moreover, the authors document positive association between competition from existing/potential rivals
and accounting conservative. These findings reveal that regulatory changes (International Financial Reporting
Standards adoption) influence the effect of various dimensions of competition on conservatism. The authors also
propose that financial reporting practices of state-owned enterprises are not influenced by competition. However,
competition affects financial reporting (conservatism) when institutional or managerial ownership is higher.
Originality/value – The authors document that strategic considerations shape conservative financial
reporting decisions of the managers. This study also advocates that when regulatory changes affect the
influence of competitive pressure on the conservative reporting decisions of the mangers. Findings also
suggest that unlike state ownership, institutional as well as managerial ownership affects the influence of
competition on managerial decisions like conservative financial reporting. These results are robust to various
alternative measures of conservatism.
Keywords IFRS, Competition, Conservatism, Ownership structure
Paper type Research paper
1. Introduction
Preceding research has given a great deal of importance to the notion that competitive
Chinese Management Studies pressure shapes managerial decisions. A large body of research has recognized that
Vol. 11 No. 4, 2017
pp. 658-688
© Emerald Publishing Limited
1750-614X
DOI 10.1108/CMS-12-2016-0248 JEL classification – G30, M4, M41
product market competition (PMC) affects management decisions like investment Product
(Akdog u and MacKay, 2012), cash holdings (Alimov, 2014), financing decisions (Byoun market
and Xu, 2016) cash distribution (He 2012), IPO decisions (Chemmanur and He, 2011) and
financial reporting practices (Majeed and Zhang, 2016). Hitherto, how competitive
competition
pressure shapes managerial decisions regarding accounting conservatism
(conservatism hereafter), i.e. loss recognition in timelier manner as compared to gains is
an issue that has been given mild importance. Earlier studies suggest that competition
may affect conservative reporting decisions because of strategic considerations, agency 659
conflict, political cost and (or) monopoly rents view (Dhaliwal et al., 2014). Strategic
view suggests that management adopts market centered approach and formulates
strategies to compete in an industry (Porter, 1980). The conservative financial reporting
may be the result of managerial approach to deter entry in the market and distort the
production decisions of the existing rivals. Agency view suggests that competition
reduces managerial opportunism, aligns the interests of the management with the
shareholders (Majeed and Zhang, 2016) and hence decreases the demand for
conservative reporting. Political cost argument proposes that firms in non-competitive
industries enjoy monopoly but also face greater political pressure which increases the
incentives for conservatism. Earlier studies also suggest that error in variable problem,
created by monopoly rents, in the investigations of conservatism may also be indicative
of association between competition and conservatism.
Motivated by these theoretical links between competition and conservatism, we
examine the association between PMC and conservatism in distinctive Chinese
institutional background. The relationship between competition and conservatism is
particularly interesting (and ignored as well) in wake of regulatory changes and
changing ownership structures. China is interesting and relevant setting because it is
moving toward more open and market based economy which makes study of business
factors (such as competition) that influence managerial decisions (and incentives) for
conservative financial reporting quite important. Second, China is the second largest
economy in the world but major source of finance is banking sector (Allen et al., 2012)
which makes study of efficient debt contracting mechanisms, such as accounting
conservatism, very important. The big four banks in China, which provide almost 80 per
cent of total industrial and commercial loans (Shao et al., 2015), are also state owned. Chen
et al. (2010a) report that these state owned banks demand higher conservatism while
making lending decisions. Therefore, study of factors that influence conservatism is also
important to study from corporate finance perspective. Another motivation comes from
various dimensions of competition to study the association between competition and
conservatism. Moreover, the effect of institutional factors such as regulatory changes and
ownership structure (such as state/institutional/managerial ownership) on the
relationship between competition and conservative financial reporting, largely ignored
by extant research, also drive this study.
This study postulates that competition potentially affects managerial decisions (and
incentives) and consequently influences demand for conservative reporting. Specifically, we
address following questions:
Q1. What is the relationship between competition intensity (CI) and non-price
competition (NPC) on conservatism in China?
Q2. Which theoretical link (strategic view, political cost and agency conflict or
monopoly rents) does explain the empirical relation between competition and
conservatism?
CMS Q3. How changes in accounting regulations (International Financial Reporting
11,4 Standards [IFRS] adoption) affect the association between competition and
conservatism?
Q4. What is the effect of different ownership structures (state ownership/institutional
ownership/management ownership) on the relationship between competition and
conservatism?
660
We document that CI and NPC are positively associated with conservatism. We further
document that industry followers are more conservative than industry leaders which imply
that the strategic considerations and not the political cost or governance, influence
management incentives for conservatism. Our results also propose that CI is associated with
conservatism only in pre-IFRS period but NPC is significant determinant of conservative
financial reporting in pre-IFRS as well as in post-IFRS period. The results also propose that
neither CI nor NPC drives conservative reporting decisions in state-owned enterprises
(SOEs). Nevertheless, CI/NPC is significant determinants of conservatism when institutional
or management ownership is higher. We also find that competition from existing rivals
(PMC_EXIST) and potential entrants (PMC_POTN) increases accounting conservatism. Our
results also suggest that competition from existing rivals is a significant determinant of
conservatism only in pre-IFRS period but competition from potential rivals is positively
associated with competition in both pre- and post-IFRS period. Findings also imply that
neither competition from existing rivals nor from potential entrants significantly affects
conservatism in SOEs. However, competition from existing/potential rivals is significant
determinant of conservatism in firms with higher institutional or management ownership.
Our study makes a number of contributions. First, we examine the association
between multiple dimensions of PMC and conservatism in Chinese institutional
environment. We document the determinants of conservative financial decisions of the
managers. Particularly, we examine the effect of NPC, on financial reporting practices.
Second, we examine the effect of regulatory changes (i.e. IFRS adoption) on the
relationship between multiple dimensions of competition and conservatism. It would
help to understand the influence of business factors on managerial decisions with the
change in regulatory regimes. It would also aid the investors, creditors and regulators
to understand the influence of regulatory changes on managerial decisions. Third, we
document that ownership structures influence the relationship between competition
and conservatism.
Our study is different from prior studies like Dhaliwal et al. (2014). First, we take into
account other dimensions like NPC and study its effect on financial reporting. Second, our
study examines the effect of regulatory changes, i.e. adoption of new accounting standards
on the relationship between competition and conservatism. Third, we examine the effect of
various ownership structures (particularly state ownership) on the relationship between
competition and conservatism.
The rest of the paper is schematized as follows. Section 2 covers institutional
background, and Section 3 proposes hypotheses after reviewing extant literature. Section 4
explains the variable measurements and methodology along with descriptive statistics.
Section 5 reports the results and additional tests. In Section 6, we present robustness checks
followed by Section 7 that concludes the paper.
2. Institutional background
Institutional, legal and cultural background of China is quite different from other developed
and developing countries. Therefore, it is of vital importance to contextualize the association
between competition and conservatism. So, an overview of Chinese corporate environment Product
is very crucial. market
competition
2.1 Chinese corporate information environment
Higher-quality public disclosure decreases the information asymmetry and results in higher
valuation, lower cost of equity and well-functioning capital market. However, emerging
countries because of their weak institutional and legal environment have opaque
information environment as well. Financial reporting practices are influenced by legal and
661
institutional environment. Kung et al. (2008) suggest that the institutional background
affects reporting incentives in shaping accounting conservatism. China is unique in a sense
that despite being the second largest economy, Chinese corporate information environment
is considered among the lowest ranked. Piotroski and Wong (2012) suggest that incentives
induced by legal, political and cultural background are to be blamed for opaque information
environment in Chinese capital market. For example, firms reporting losses for three
consecutive years would be delisted. So, firms face regulatory pressure to distort quality of
financial reporting. China adopted IFRS in 2007, so the Chinese firms follow the same
accounting rules and regulations followed around the world but these rules and regulations
are designed for market economies. Moreover, although the objective of convergence with
IFRS was to achieve high-quality financial reports, this convergence escalated the earnings
distortion (He et al., 2012).
China is also characterized by limited capital market pressures to reduce
information asymmetry. One of the reasons is that the main source of finance is still
banking sector (Allen et al., 2012). So, study of efficient debt contracting mechanisms,
such as accounting conservatism, is very important. Moreover, the big four banks in
China, which provide almost 80 per cent of total industrial and commercial loans (Shao
et al., 2015), are also state owned. Chen et al. (2010a) reported that these state owned
bank require higher conservatism while making lending decisions. The demand for
accounting conservatism is also influenced from corporate finance point of view in
China as higher level of conservatism reduces the risk and resultantly cost of financing
(Zhao et al., 2014). Another factor that affects financial reporting decisions is short-term
investment horizon of investors (exceptionally high trading turnover which is not
limited to individual investors; institutional investors also have short-term investment
horizon) (Jiang and Kim, 2015). A large number of individual investors in the Chinese
equity market also affect the demand for accounting conservatism in China. For
example, Jaggi et al. (2016) report that Chinese firms reduce information asymmetry
between managers and investors by accounting conservatism and institutional
investors (unlike individual investors) and prefer stocks of firms with higher
conservatism. However, in Chinese equity markets, out of 65.43 million investors in
SSE, 65.1 million were individual investors. Therefore, the demand for conservatism
will be influenced by the presence of large number of individual investors as well.
2.2 Ownership structure in China

Another relevant factor which affects financial reporting practices in China is the ownership
structure. Wu et al. (2016) noted that two third of the listed companies in China are SOEs.
The main objective of these firms is not profit maximization but achievement of socio-
political goals (Faccio, 2006). The risk of default faced by SOEs is much less than the risk
faced by non-state-owned enterprises (NSOEs) because of highly expected bailout from the
state in case of distress (Chen et al., 2010a). The lower level of risk associated with SOEs
enables them to obtain finance at lower cost. Berger et al. (2009) suggest that Chinese
CMS government influences the corporate sector not only by direct ownership but also through
11,4 the allocation of bank loans. In the presence of privileged SOEs, political connections are
very important for NSOEs which reduce financial constraints for them (Cull et al., 2015).
Feng et al. (2013) reported that political connections of controlling shareholders result in
“better access to debt financing, preferential tax treatment, more government subsidies, and
superior access to regulated industries”. These are the reasons that political connections
662 increase firm value in China (Shi and Cheng, 2016). In China, NSOEs face strict institutional
regulations (e.g. loan restriction or industrial barriers) than the SEOs; hence, “guanxi” as an
alternative for formal institutional backing is more critical to the NSOEs. In the political
economy perspective, political connections result in rent seeking but they are very much
valuable (particularly for NSOEs) in China.

The institutional ownership, in China, consists of mutual funds, securities companies and
other financial institutions. Mutual funds are the largest institutional owners with an
average of 5.6 per cent ownership in a firm followed by securities companies and other
financial institutions (banks and insurance companies). The mutual funds owned shares in
almost 90 per cent of the listed firms at the end of 2011 (Firth et al., 2016). These mutual
funds are considered as expert investors who can also convey their concern in annual
general meetings and conference calls. However, other institutional investors like securities
companies and banks are less effective monitor and passive investors.
Management ownership increases the incentives for managers to work hard. The
management ownership, in China, increases from less than 1 to almost 8 per cent in 2010
(Dixon et al., 2015). Moreover, CEO equity ownership worth much higher than their pay in
China (Conyon and He, 2012). The ceiling imposed by the state on managerial pay in SOEs
decreases the productivity of the management or the productive managers have higher on-
job perquisites (Fan et al., 2011). However, managerial ownership directly associates
managers’ performance to their wealth which motivates them to work hard. This
phenomenon is particularly important in China where personal wealth of the managers is
not very high.
3. Hypothesis development
3.1 Competition and conservatism
Interaction of PMC and accounting literature has been recently studied quite extensively.
For example, the effect of competitive pressure on equity prices (Giroud and Mueller, 2011),
cost of capital (Chen et al., 2014), investment, cash payout (He, 2012), capital structure
(Campello, 2003), firm values (Ammann et al., 2013) and accounting disclosure (Majeed and
Zhang, 2016) has been studied previously. However, despite quite a large body of literature
there have been very few studies that examine the effect of competitive pressure on
management decisions regarding conservatism.
Prior studies have offered various channels through which PMC affects conditional
conservatism. Basu (2005) argued “conditional conservatism strongly influences the
properties of accounting numbers”; therefore, study of the factors which influence
conditional conservatism is very important. In conditional conservatism, the news is
incorporated as it is received, whereas in unconditional conservatism, information is
incorporated at the beginning of the asset’s life. The effect of competition on conditional
conservatism, i.e. accelerated loss recognition (as compared to gains), also seems logical as it
influences profitability in response to some news (which may be related to competitive
environment), whereas in unconditional conservatism, understatement of book values and
earnings is independent of any news.
The strategic view proposes that under stiff competition, firms would recognize losses Product
quickly to discourage new firms (Dhaliwal et al., 2014). An early recognition of bad news market
may imply lower future profits resulting from lower demand. This argument is in line with
proprietary cost hypothesis, i.e. firms try to conceal actual information to retain competitive
competition
advantage (Verrecchia, 1983). This argument also suggests that firms hold information “to
exploit incorrect production decisions made by their competitors” (Clinch and Verrecchia,
1997). This argument is particularly relevant when firms are facing NPC because individual
mangers do not have control over pricing to compete in the market and they try to distort
663
the opponent’s (production) decisions by signaling with early loss recognition (i.e.
conservative accounting). The strategic view suggests that stiff competition would result in
higher accounting conservatism.

Another line of inquiry comes from agency theory (Jensen and Meckling, 1976). Prior
literature suggests that competitive pressure acts as a governance mechanism and
reduces the agency conflict between managers and shareholders (Majeed and Zhang,
2016). Giroud and Mueller (2010) note lower operating performance in non-competitive
industries particularly when corporate governance mechanisms are weak.
Furthermore, Giroud and Mueller (2011) also argue that industries that face less
competitive pressures benefit more from corporate governance as compared to those
which face less competitive pressure. Ammann et al. (2013) report that corporate
governance increases firm value in such industries only where competition is low which
is in line with the argument that competition acts as substitute for governance
mechanisms. Alimov (2014) also suggests that value of cash holdings increases with the
increase in competition thereby reducing agency cost associated with cash holding.
Some other studies in emerging economies also support the governance role played by
competition (Fosu, 2013; Chen et al., 2014). These arguments are consistent with Hart
(1983) who argued that stiff competition disciplines the management and “reduces
managerial slack”. So the governance view suggests that competition substitutes
governance mechanism, so there is less demand for other governance mechanisms such
as accounting conservatism; therefore, higher competition is associated with less
conservatism. However, the substitute governance mechanism hypothesis may not hold
because competition and accounting conservatism may paly complementary role in
reducing managerial opportunism (Hou and Robinson, 2006) or lower return on
managerial efforts as a result of stiff competition may exacerbate agency conflict which
may require higher conservative to curb such agency problems.
Another channel is through political cost view which postulates that monopolistic firms
would recognize losses more quickly to avoid scrutiny from regulators (Dhaliwal et al.,
2014). Prior research (Lara et al., 2009) also reports higher conditional conservatism after
regulatory changes which implies strict regulations impose a political cost which firms try
to reduce by adopting conservative accounting. Therefore, a negative association is
expected between competition and conservatism. Dhaliwal et al. (2014) also argued that
monopoly rents create “error-in-variable problem”. The PMC reduces error-in-variable
problem; therefore, competition is likely to be positively associated with conservatism. The
agency view suggests negative relationship between competition and conservatism, but the
strategic view along with political cost argument and error-in-variable problem suggests
that higher competition would result in higher conservatism. As we expect both positive and
negative relationships, we propose competing hypotheses.
H1. There is a positive (negative) relationship between PMC and conditional
conservatism.
CMS 3.2 Competition, International Financial Reporting Standards and accounting conservatism
11,4 Prior studies document the effect of regulatory changes (e.g. IFRS adoption) on
managerial decisions related to financial reporting practices such as conservative
accounting (Barth et al., 2008; Brown, 2011). However, all these studies are inconclusive
regarding the direction of effect of IFRS on conservatism because of conflicting
arguments. Some of the studies report positive association, whereas others report
664 negative association between IFRS adoption and conservatism. For example, Gebhardt
and Novotny-Farkas (2011) suggest that IFRS adoption reduces timely loss recognition in
European Banks. Ahmed et al. (2013) also suggest a reduced conservatism (timely
recognition of losses) after IFRS adoption. Similarly, Chen et al. (2010b) report loss
recognition in less timely manner after introduction of IFRS. So this line of inquiry
supports the argument that IFRS decreases the conservatism in financial reporting.
However, another line of inquiry suggests that IFRS increase timeliness of loss
recognition and hence increase accounting conservatism. Hung and Subramanyam (2007)
propose that IFRS adoption in Germany has increased the conditional conservatism Ahmed
et al. (2013) also report a negative relationship between conservatism and IFRS adoption but
only in countries with strong enforcement. So, the effect of regulatory changes (such as IFRS
adoption) depends on enforcement mechanism, institutional and business environment as
well as the quality of former domestic accounting regulations (Chinese GAAP in this case).
Chan et al. (2015) also support this line of inquiry and note an increase in timeliness of loss
recognition after mandatory adoption of IFRS but only for the firms with prior higher cost of
debt. Prior studies (Andre et al., 2015) further argue that conservatism reduced in countries
with lower audit quality and weaker compliance with accounting standards.
An important result drawn from these studies is that conservatism decreases after IFRS
adoption in economies with poor regulation enforcement of regulations, weak investor
protection and weak institutional settings. China has all the characteristics which make it a
weak institutional setting because the enforcement of regulation is weak, investor protection
is poor and capital market pressures are limited (Allen et al., 2012; Jiang and Kim, 2015). Due
to these factors, a negative relationship is expected between IFRS adoption and
conservatism. However, the effect of IFRS adoption on the relationship can be in either
direction. If competition and conservatism both move in the same direction, keeping in view
the competing hypotheses for competition conservatism, then the IFRS adoption may
strengthen the relationship between competition and conservatism. But in case both
competition and IFRS have opposite effect on conservatism, then the effect of competition
may not be strong enough to offset the effect of IFRS adoption which leads to weaker
relationship. This discussion leads us to following hypothesis:
H2. The relationship between competition and conservatism is stronger (weaker) after
IFRS adoption.
3.3 Competition, state ownership and conservatism (principle–principle agency conflict)

Management incentives affect the accounting conservatism (Ball et al., 2003). However, the
management incentives differ with the ownership structure along with various other
pressures. For example, the primary objective of SOEs is not the shareholders wealth
maximization, but they pursue social and political objectives like regional employment and
political goals. The capital market pressures for funds faced by SOEs are less as compared
to NSOEs (Faccio, 2006) because of government support. Unlike developed economies,
Chinese firms depend on banking sector for financing needs (Allen et al., 2012). The SOEs
are given preferential treatment from the banking sector which is also dominated by
state-owned big four banks. So SOEs face less capital market pressures as compared to Product
NSOEs. Moreover, SOEs face greater legal and political restrictions than NSOEs (Xia and market
Zhu, 2009). Some studies propose that corporate governance is less effective in SOEs.
However, compared to NSOEs, cost of non-compliance with accounting standards is higher
competition
for SOEs. The cost is higher for SOEs because such violations damage reputation and
political carrier of the top management of SOEs. Therefore, SOEs are considered more
conservative in their accounting practices. Chen et al. (2010a) suggest that SOEs are less
conservative as compared to NSOEs because of less demand for conservative reporting from 665
creditors. They argue that SOEs are backed by state and face lower downward risk which
reduces the demand for conservatism from lenders.
As a large number of firms in China are SOEs, it is important to understand the impact of
competitive pressure on the accounting practices of SOEs. Hence, we examine the impact of
state ownership on the relationship between competition and conservatism. Competitive
pressure may play a less profound role in shaping managerial decisions related to
conservative accounting practices in SOE due to following reasons. First, a large number of
SOEs are in regulated industries which face less competition. Second, most of the SOEs are
larger in size and they have captured majority of the market share. Hence, state ownership
may play a governance role in China resulting in weaker relationship between competition
and conservatism. Furthermore, as SOEs have better access to financing due to dominant
state-owned banking sector the need for conservative accounting in SOEs may not be higher
for bank loans (financing). However, the strategic considerations may increase the demand
for conservative accounting practices in SOEs leading to a stronger relationship between
competition and conservatism in case of SOEs. This discussion gives rise to the following
competing hypotheses:
H3. The relationship between competition and conservatism is stronger (weaker) for
SOEs.
3.4 Competition, institutional ownership and conservatism

Prior studies suggest that institutional ownership is associated with lower agency conflict
as they act as a monitoring mechanism and reduce managerial opportunism (Roberts and
Yuan, 2010; Firth et al., 2016). It is argued that institutional owners play better monitoring
role than individual investors particularly monitoring by financial reports. Moreover, the
institutional investors have long-term investment perspective unlike individual investors
who are mainly driven by speculation and liquidity. The long-term investment motivates
the institutional investors to monitor the management behavior to reap the maximum
benefits from investment. As conservatism improves the governance, particularly in market
where information asymmetry is higher (like China), institutional investors may demand
higher conservatism.
Preceding research also indicates that institutional ownership is associated with higher
conservatism. Ramalingegowda and Yu (2012) propose that conservatism increases with the
institutional ownership. They argue that institutional investors are more sophisticated than
individual investors and understand the governance benefits associated with conservatism
increase its demand. Lin (2016) proposes that higher level of dedicated investors lead to
higher conservatism. As institutional ownership is associated with higher conservatism, we
examine the effect of institutional ownership on the relationship between competition and
conservatism. Institutional ownership may compliment the governance role played by
competitive pressure, resulting in more profound effect of competitive pressure on
conservatism. However, there may be a less profound effect of competitive pressure on
CMS conservatism because higher institutional ownership (because of the governance role) may
11,4 decrease the demand for conservatism. This discussion leads to following hypothesis:
H4. The relationship between competition and conservatism is stronger (weaker) when
institutional ownership is higher.
666 3.5 Competition, management ownership and conservatism

Abundant prior studies examine the effect of managerial ownership on the corporate
behavior and firm performance (Florackis et al., 2015; Chen and Yu, 2012; Paek et al., 2013).
Similarly, preceding literature documents the effect of managerial ownership on the
financial reporting practices (Gelb, 2000; Habib and Jiang, 2012). These studies yielded two
opposing views, i.e. management entrenchment view (Lundstrum, 2009; Shuto and Takada,
2010; Habib and Jiang, 2012) and incentive alignment hypothesis (Mustapha and Ahmad,
2011). Shuto and Takada (2010) suggest with the increase in managerial ownership, the
control of the managers on the firm increases and results in greater managerial
expropriation. So the increased managerial ownership exacerbates opportunistic behavior of
the management, as they are less disciplined and serve personal interests. Consequently,
higher management ownership may increase the demand for accounting conservatism to
deter the managerial opportunism.
However, incentive alignment view proposes that higher managerial ownership is
associated with long-term horizon of the managers. Higher managerial ownership aligns the
interests of the managers and reduces agency cost (Mustapha and Ahmad, 2011).
Furthermore, when managerial ownership is higher, managers tend to avoid earnings
manipulation and wealth transfer for private benefits, considering the future negative effect
of such actions. Therefore, higher managerial ownership disciplines the management and
reduces the agency conflict because the interests of managers are aligned with the owners.
Han et al. (2014) also support the interest alignment hypothesis and propose that higher
managerial ownership increases the accuracy of financial analysts’ private and public
information. Similarly, Fu and Wedge (2011) argue that higher managerial ownership
decreases disposition effect in mutual funds. So, higher managerial ownership may decrease
the demand for conservatism because managerial interests are aligned with owners.
As, both conservatism and managerial ownership curb agency conflict (Artiach and
Clarkson, 2014; García Lara et al., 2016), higher management ownership reduces demand for
conservatism as managerial interests are more aligned with the owners (Lafond and
Roychowdhury, 2008). So, Xia and Zhu (2009) and Shuto and Takada (2010) suggest
negative relationship between managerial ownership and conservatism. Therefore, a
negative relationship is expected in this study as well. However, the only problem in this
relationship is managerial incentives to boost income (to increase stock prices) (Xia and Zhu,
2009). So adopting accounting practices which convey bad news more quickly as compared
to good news may not be best interest of management. As majority of the firms in the
sample period in China are state owned, the political ambitions of the managers also play an
important role in shaping managerial decisions regarding financial reporting. The
conservative reporting practices may prove a hurdle in the political future and future
rewards of the managers and undermine the incentive alignment effect of managerial
ownership. Consequently, a negative relationship between managerial ownership and
conservatism is also not unlikely.
Keeping in view, the opposing effects of managerial ownership on conservatism, the
nexus of competition and conservatism may be influenced in two different ways. Higher
managerial ownership, if aligns incentives of the management with the owners, may
complement the monitoring role played by competition and therefore may strengthen the Product
effect of competition on conservatism. In such a case, the effects of competition on market
conservatism would be stronger. Contrarily, higher managerial ownership, if it reduces the competition
demand for conservatism, can potentially weaken the relationship between competition and
conservatism:
H5. The relationship between competition and conservatism is stronger (weaker) when
managerial ownership is higher. 667
4. Methodology/research design
4.1 Measurement of product market competition

4.1.1 Competition intensity. We use Herfindahl–Hirschman index (HHI) as proxy for PMC.
HHI has been widely used as proxy for PMC in preceding research (Majeed and Zhang, 2016;
Wu et al., 2015). We calculate HHI by using following formula:
X
I
Hy ¼ S 2 xy (1)
i¼1
where S denotes the market share of firm “x” in industry “y” and market share is measured
as total revenue of the firm “i” divided by total revenue of industry “y”. A higher value of
“H” means that only a few large firms hold major portion of the market share. We generate a
new variable PMC by multiplying negative one with H so that higher values mean high
intensity of competition and vice versa:
PMC 5 ð1Þ Hj
Furthermore, preceding studies have taken into account various aspects of competition
(which cover two dimensions of competition, i.e. competition from existing rivals and
competition from potential entrants) to understand its effect on financial reporting. Some of
these studies take various aspects and individually however influential studies (Li, 2010;
Dhaliwal et al., 2014) have combined all these factors and generated two variables (using
principle component analysis) which represent two dimensions, i.e. competition from
existing rivals and competition from potential entrants. As we study the moderating role of
various ownership and regulatory changes so such arrangement is essential to avoid
unnecessary complexities.
4.1.2 Non-price competition. We measure NPC as ratio of advertising expense to sales
revenue ratio following Chen et al. (2015). Advertising is considered as “the prototype of non-
price variables” (Stigler, 1968). To enhance the demand for product and services, the non-
price approaches include reduced prices and advertising expenses. Schmalensee (1978)
describes the role of advertising to deter the entrance in NPC industries: “the products in this
market are clearly differentiated, and advertising-to-sales ratios have generally exceeded 10
per cent in the postwar period”. Chen et al. (2015) use the ratio of advertising expenses to
total sales as proxy for NPC. Although Chen et al. (2015) also use research and development
(R&D) expenses as a measure of NPC, the disclosure of R&D is incomplete. Moreover, the
disclosure of R&D expenses initiated in 2007 in China, but our sample period starts from
2000. Second, even after 2007, the disclosure is quite incomplete because majority of the
firms do not separately disclose R&D expenses. However, Yang et al. (2015) use incremental
CMS intangibles instead of R&D expenses. So we also use incremental intangibles as proxy for
11,4 R&D expenses and our results (un-tabulated) remain consistent.
4.2 Measurement of conservatism

We use Khan and Watts (2009) firm-year measure of financial reporting conservatism score
(C_score) as measure of conservatism. The C_score is based on Basu (1997) proxy of
668 asymmetric earnings timeliness. Prior studies Ettredge et al. (2012), and Jayaraman (2012)
suggest that Khan and Watts (2009) measure for conservatism captures the firm level
variations in conservatism well. However, we also use some other measures in our
robustness tests. Khan and Watts (2009) draw from Basu (1997) measure of asymmetric
timeliness to construct a firm-year measure of conservatism:
Xi;t
¼ b 0 þ b 1 Dit þ b 2 Rit þ b 3 Dit Rit þ « it (2)
Pi;t1
where X is the income before extraordinary items and P is share price. D is dummy variable
which is equal to one if return is negative and zero otherwise. R is return from the fifth
month of the year “t” to the fourth month of the year “t þ 1”. C_Score is linear function of
firm-specific characteristics, i.e. Lev (leverage), size and MB (market-to-book ratio):
C Score ¼ b 3 ¼ m 1 þ m 1 Sizei þ m 1 MBi þ m 1 Levi
The annual cross-section regression model used is as follows:
Xi;t
¼ b 0 þ b 1 Di þ Ri ð m 1 þ m 1 Sizei þ m 1 MBi þ m 1 Levi Þ
Pi;t1
þ Di Ri ðl 1 þ l 1 Sizei þ l 1 MBi þl 1 Levi Þ þ ðd 1 Sizei þ d 2 MBi

þ d 3 Levi þ d 4 Di Sizei þ d 5 Di MBi þ d 6 Di Levi Þ þ « it
We refer conservatism as “CON”. Khan and Watts (2009) conservatism measure is used
widely in prior studies (García Lara et al., 2016).
4.3. Estimation model and control variables

We use following model to examine the relationship between PMC and conservatism. We
use various structures of the model to test the propositions:
CONit ¼ b 0 þ b 1 PMCit þ b 2 Sizeit þ b 3 Levit þ b 4 BMit þ b 5 AQit

þ b 6 LRSTDit þ b 7 SOEit þ b 8 IFRSit þ Year þ Firm þ « it
We use several firm level control variables following prior studies. We control for size
(natural log of total assets) because prior studies suggest that larger firms are associated
with lower level of conservatism. We further control for the impact of debt contracting and
introduce leverage ratio (Lev) in our model. Leverage exhibits the extent of pressure exerted
by debt-holders to report conservative earnings. We also control for market to book value
(book value of equity scaled by total value of equity) following preceding studies (Dhaliwal
et al., 2014; Khurana and Wang, 2015). The firms audited by big established auditing firms
also report more conservatively. Hence, we also control for audit Big4 which is equal to one Product
if firms are audited by one of the big four auditing firm and zero otherwise. Litigation risk market
tends to be associated with higher conditional conservatism so we control for litigation risk
competition
as well. Litigation risk is a dummy variable which is equal to one if firm belongs to
technology industry and zero otherwise. Chinese unique institutional environment is
characterized by the presence of a large number of SOEs. Prior studies suggest an
association between state ownership and conservatism (Xia and Zhu, 2009; Chen et al., 669
2010a). Therefore, we also control for state ownership. A dummy variable SOE is used
which is equal to one if firm is state owned and zero otherwise. Some prior studies (Andre et
al., 2015) also suggest that conditional conservatism has decreased after IFRS adoption in
Europe. Therefore, we control for adoption as well. IFRS is also a dummy variable which is
equal to one for the period after 2006 (Chinese firms report under IFRS regime with effect
from January 1st, 2007) and zero otherwise. We use interaction term of IFRS and interaction
term of ownership variables with competition measures to test our hypotheses. Firm level
clustering is used for the estimation of econometric models for likely cross-sectional and
time series residual auto-correlation that deals with the hetroskedasticity issues as well.
4.4 Sample description

Our sample contains all A-listed, non-financial, Chinese firms for the period spanning from
2000-2014. The data are acquired from China Stock Market and Accounting Research
database. We deleted industries with less than 15 firms in an industry for the measurement
of product market proxy, i.e. HHI because large values of HHI represent diminishing
industries (Ali et al., 2009). The final sample contains of 17,428 firm-year observations for CI
with complete data in 38 industries. The industries are classified by second level code of
CSRC.
4.5 Descriptive statistics and correlation matrix

Table I presents descriptive statistics for the continuous variables. In our sample, an
average firm in an industry has mean CI (competition measure) of 0.0126 which is
comparable to the prior studies by Hoberg and Phillips (2010) and Dhaliwal et al. (2014),
whereas the median value is 0.0032. The mean value of NPC is 0.1294 and median value is
Variables Mean Median SD P25% P75% N
CON 0.0399 0.0249 0.0818 0.0000 0.0623 16802

CI 0.0126 0.0032 0.0372 0.0094 0.0010 17428
NPC 0.1294 0.0398 8.8033 0.0194 0.0773 15501
Size 21.6584 21.5035 1.2643 20.8070 22.3142 17440
Lev 0.4827 0.4686 0.5521 0.3057 0.6182 17440
MTB 3.5059 2.7290 53.8606 1.7678 4.4232 16802
DM 0.8678 0.9481 0.1746 0.7922 1.0000 12946
IND 0.3323 0.3333 0.1073 0.3333 0.3750 17312
IO 30.2491 26.5133 24.9317 6.4239 49.9756 15764
MO 0.0721 0.0001 0.1670 0.0000 0.0051 16827
Notes: CON represents accounting conservatism measured following Khan and Watts (2009), PMC
represent competition intensity measured by HHI, NPC is non-price competition, Size is natural log of total
assets, Lev denotes leverage ratio, MTB is market-to-book ratio, DM represents debt maturity, IND denotes Table I.
independent directors, IO represents institutional ownership and MO denotes management ownership Descriptive statistics
CMS 0.0398. The mean and median values of conservatism measure based on Khan and Watts
11,4 (2009) firm-specific conservatism are 0.0399 and 0.0249, respectively.
Table II reports the pairwise correlation between all the variables used in the analysis.
The pairwise correlation between conservatism measure and control variables, i.e. natural
log of total assets (Size), leverage ratio (Lev), market-to-book ratio (MB), big 4 auditors
(Big4), litigation risk (LR), state ownership (SOE), debt maturity (DM), institutional
670 ownership (IO) and management ownership (MO) is statistically significant.
5. Results and discussion

5.1 Empirical findings
5.1.1 Competition and conservatism. Table III reports the results for the effect of CI and
NPC on conservatism. The coefficient in the Model 1 (Panel A) shows the effect of CI is
0.1447 and is statistically significant at 1 per cent. Similarly, the coefficient in the Model 1
(Panel B) which shows the effect of CI is 0.0044 and is statistically significant. These results
support the argument that stiff competition result in greater conservatism.
5.1.2 Accounting for the effect of debt maturity and board independence. In Model 2
through 4, we introduce different variables which may potentially affect the managerial
decisions regarding conservative financial reporting. We introduce two variables, i.e. debt
maturity and board independence. Debt maturity influences the managerial decisions as it
reduces agency problem and information asymmetry. Prior studies Cutillas Gomariz and
Sánchez Ballesta (2014) also suggest that short debt maturities alleviate management’s
suboptimal investment choices. The short debt maturity allows more frequent external
monitoring of the managers (Gul and Goodwin, 2010). The creditors can evaluate firms’
performance so that they may choose whether to renew the contract or modify the terms of
the contract (Ortiz-Molina and Penas, 2008). Khurana and Wang (2015) demonstrate that
short debt maturities reduce information asymmetry thereby decreasing the demand for
conservatism. Model 2 shows that even when we control for short debt maturity, our
variable of interest (PMC) remains significant in both cases, i.e. CI and NPC.
Another important factor which influences managerial decisions for conservative
financial reporting is board independence. Higher board independence (i.e. percentage of
independent directors) is associated with higher conservatism (Lim, 2011). One of the
reasons may be that the independent directors do not have enough information when
information asymmetry is high (Sun et al., 2012). Therefore, boards may demand higher
conservatism to decrease agency cost (Ahmed and Duellman, 2007). Hence, we also control
for board independence. Our results, as reported in Model 3, remain consistent with those in
previous models. Then we control for both debt maturity and board independence at the
same time and our results remain the same.
Most of our control variables are in accordance with theory and prior research. Our
results show that firms larger in size are less conservative. While higher leverage is
associated with higher conservatism and higher market to book value is negatively
associated with conservatism. Prior studies (Dhaliwal et al., 2014) also suggest that firms
audited by big auditors are more conservative and our results are consistent with these
studies. Our results also show that higher litigation risk is associated with higher
conservatism. Preceding studies (Chen et al., 2010a, 2010b) have produced conflicting
evidence regarding the impact of state ownership accounting conservatism. Our results
support the view presented by Chen et al. (2010a, 2010b) that state ownership reduces the
demand for conservatism. Similarly, our results also show that IFRS adoption reduce
accounting conservative which is consistent with Ahmed et al. (2013).
Variable Con PMC NPC Size Lev MTB SOE IFRS LR DM IND IO MO
Con 1
CI 0.0564 1
NPC 0.0263 0.0028 1
Size 0.0545 0.3334 0.0072 1
Lev 0.0765 0.0328 0.0149 0.0203 1
MTB 0.0227 0.0044 0.0005 0.0154 0.0130 1
SOE 0.1003 0.1199 0.0051 0.2667 0.0733 0.0001 1
IFRS 0.3528 0.0878 0.0098 0.2587 0.0403 0.0004 0.2018 1
LR 0.0398 0.0621 0.0025 0.1365 0.0780 0.0160 0.1166 0.0598 1
DM 0.0469 0.0534 0.0047 0.3629 0.0707 0.0115 0.1925 0.0069 0.0999 1
IND 0.0082 0.0392 0.0004 0.1903 0.0151 0.0081 0.1110 0.5053 0.0449 0.0071 1
IO 0.1666 0.0652 0.0075 0.4324 0.0150 0.0010 0.1065 0.4845 0.0138 0.1159 0.2131 1
MO 0.1158 0.1022 0.0021 0.1538 0.1414 0.0046 0.4848 0.2687 0.1489 0.1758 0.1827 0.1444 1
Note: Italic represent significant at 10% or lower
Correlation matrix
671
competition
market
Table II.
Product
11,4
672
CMS
Table III.
accounting
competition on
period 2000-2014
regression results
This table reports
of product market
examining the effect
conservatism for the

Panel A Panel B
Competition intensity (CI) Non-price competition (NPC)
Variable Model 1 Model 2 Model 3 Model 4 Mode l Model 2 Model 3 Model 4
*** *** *** *** ** ** **
PMC 0.1447 (4.25) 0.1570 (4.54) 0.1449 (4.23) 0.1594 (4.56) 0.0044 (2.39) 0.0037 (2.32) 0.0054 (2.17)0.0046** (2.45)
Size 0.0084*** (9.48) 0.009*** (10.19) 0.0082*** (9.12)
0.0088*** (9.91) 0.0065*** (7.90) 0.0068*** (8.50) 0.0063*** (7.59)
0.0067*** (8.25)
Lev 0.0557*** (10.79) 0.057*** (10.74) 0.0573*** (10.97)
0.0583*** (10.93) 0.0574*** (11.11) 0.0582*** (11.02) 0.0590*** (11.30)
0.0598*** (11.22)
MTB 0.0016*** (3.85) 0.002*** (3.87) 0.0015*** (3.66)
0.0015*** (3.68) 0.0023*** (4.25) 0.0023*** (4.27) 0.0022*** (4.00)
0.0022*** (4.02)
Big4 0.0045** (1.97) 0.004** (1.96) 0.0051** (2.24)
0.0051** (2.22) 0.0053** (2.11) 0.0054** (2.14) 0.0061** (2.42)
0.0062** (2.46)
LR 0.0075* (1.86) 0.007* (1.63) 0.0068* (1.68)0.0058* (1.42) 0.0036 (0.83) 0.0027 (0.62) 0.0029 (0.67)0.0018 (0.42)
SOE 0.0062*** (5.71) 0.006*** (5.68) 0.0056*** (5.06)
0.0055*** (5.01) 0.0066*** (5.77) 0.0065*** (5.75) 0.0059*** (5.16)
0.0059*** (5.12)
IFRS 0.0970*** (43.89) 0.097*** (44.00) 0.0987*** (44.08)
0.0989*** (44.22) 0.0968*** (44.07) 0.0968*** (44.07) 0.0986*** (44.04)
0.0987*** (44.06)
DM 0.010** (2.47) 0.0111*** (2.79) 0.0086** (2.04) 0.0660*** (5.27)
IND 0.0647*** (5.55) 0.0653*** (5.59) 0.0655*** (5.23) 0.0098*** (2.33)
Constant 0.0848*** (4.63) 0.1042*** (5.59) 0.1033*** (5.50) 0.1255*** (6.58) 0.0404*** (2.35) 0.0553*** (3.21) 0.0598*** (3.35) 0.0771*** (4.32)
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
R2 24.17 24.19 24.38 24.41 24.45 24.46 24.66 24.68
*** *** ***
F-statistics 130.57*** 128.51*** 125.71*** 123.99*** 121.23 119.06 116.39 114.49***
Notes: The dependent variable is accounting conservatism measure as defined by Khan and Watts (2009). All models include firm and year dummies and
t-values reported in the parentheses are calculated with standard errors clustered by firms. ***represent significance level at 1%; **represent significance level at
5% and *represent significance level at 10%
5.1.3 Industry leaders/followers and conservatism. Firms within an industry also face Product
different level of competition and it affects the financial disclosure of firms. So following Li market
(2010) and Dhaliwal et al. (2014), we divide our sample into leaders and followers and
examine the effect of industry leaders (followers) on the managerial decisions regarding
competition
conservative reporting. Nickel (1996) suggests that as compared to industry followers,
industry leaders face less competitive pressure. They argue that greater market share
represents greater market power so it is expected that effect of competitive pressure on
673
managerial decisions regarding financial reporting practices would be less pronounced for
industry leaders. The division of firms into industry leaders/followers may help to provide
causal explanation. We rank firms into industry leaders and followers on the basis of market
share. First, the firms are divided into quartiles on the basis of market share and those firms
in the top quartiles are labeled as leaders and rest of the firms as followers (Table IV).
Our results, consistent with Li (2010) and Dhaliwal et al. (2014) suggest that positive
association between industry followers and conservatism is highly significant. The positive
association between results for industry leaders, though positive, is less significant and
much lower in magnitude. These results suggest that the positive association between
competition and conservatism is shaped by strategic considerations (strategic consideration
view).
5.1.4 Product market competition, International Financial Reporting Standards adoption
and accounting conservatism. To test our second hypothesis, we examine the impact of IFRS
adoption on the relationship between competition and conservatism. Our results show that
IFRS adoption has reduced the accounting conservatism in China. These result are
consistent with prior studies (Chen et al., 2010b; Ahmed et al., 2013). Moreover, the results
show that CI does not affect accounting conservatism after IFRS adoption as moderating
variable IFRS_PMC is insignificant. These results also show that NPC is positively
associated with conservatism before IFRS adoption as well as after IFRS adoption. It implies
that although conservatism decreased in China in post-IFRS period but not in the firms
which face high NPC. These results exhibit how regulatory changes effect association
between business factors and financial reporting practices (Table V).
5.1.5 Product market competition, ownership structure and accounting conservatism.
We examine the impact of state ownership, institutional ownership and management
ownership on the relationship between PMC and accounting conservatism. Our results show
that state ownership is negatively associated with conservatism which is consistent with
Chen et al. (2010a). However, we do not find any statistically significant relationship for the
variable of interest, i.e. PMC_SOE. The result implies that CI and (or) NPC play no part in
increasing or decreasing conservatism in SOEs. Our results are consistent with Majeed and
Zhang (2016) who suggest that competition does not affect financial reporting practices of
SOEs. One reason for this insignificant relation may be that majority of the SOEs are market
leaders in their respective industries and hence, face less competitive pressure as compared
to followers as discussed earlier. So, CI and NPC do not affect managerial decisions in SOEs.
Second, the financial reporting decisions SOEs are less effected by business factors (like
market competition) and more influenced by political ambitions of the managers (Table VI).
However, our results show that institutional ownership is positively associated with
conservatism which is in line with Ramalingegowda and Yu (2012). The results also exhibit
that institutional ownership is positively associated with conservatism which supports
argument that institutional ownership increases the demand for conservatism by
influencing managerial incentives for over-investment and earnings overstatement. Our
results also suggest that conservatism increases with increase in CI and NPC for the firms
11,4
674
CMS
Table IV.
accounting
followers on
period 2000-2014
regression results
This table reports
of industry leaders/

Panel A Panel B
Leaders Followers
Variable Model 1 Model 2 Model 3 Model 4 Model 1 Model 2 Model 3 Model 4
** ** * ** *** *** ***
Leaders 0.1035 (2.08) 0.1225 (2.39) 0.0928 (1.80) 0.1110 (2.09) 2.7103 (6.96) 2.8665 (7.30) 2.6233 (6.72) 2.7973***(7.10)
Size 0.0073*** (3.71) 0.0086*** (4.20) 0.0064*** (3.07)0.0076*** (3.54) 0.0134*** (11.83) -0.0144*** (12.89) 0.0132*** (11.43) 0.0143*** (12.58)
***
Lev 0.0881*** (9.61) 0.0901*** (9.83) 0.0908*** (9.69) 0.0927*** (9.88) 0.0518*** (8.61) 0.0533 (8.61) 0.0531*** (8.74) 0.0547*** (8.750)
MTB 0.0056*** (7.34) 0.0057*** (7.43) 0.0056*** (7.31)0.0057*** (7.41) 0.0010** (2.14) 0.0010** (2.15) 0.0009* (1.92) 0.0009* (1.93)
Big4 0.0043 (1.23) 0.0041 (1.17) 0.005 (1.41) 0.0048 (1.36) 0.0025 (0.76) 0.0025 (0.78) 0.0027 (0.80) 0.0027 (0.82)
LR 0.0159 (1.43) 0.0193* (1.70) 0.0141 (1.23) 0.0174 (1.48) 0.0178*** (4.21) 0.0172*** (4.08) 0.0166** (3.90) 0.0160*** (3.74)
***
SOE 0.0071** (2.48) 0.0072** (2.48) 0.0065** (2.26) 0.0065** (2.27) 0.0052*** (4.05) 0.0051 (3.98) 0.0047*** (3.56) 0.0045*** (3.47)
IFRS 0.0924*** (19.74) 0.0935*** (19.9) 0.0945*** (19.85)
0.0955*** (19.98) 0.1048*** (38.70)0.1053*** (38.92) 0.1060*** (38.68) 0.1066*** (38.95)
DM 0.0222** (2.30) 0.0212** (2.18) 0.0136*** (2.99) 0.0152*** (3.32)
IND 0.0776*** (2.92) 0.0762*** (2.85) 0.0570*** (4.29) 0.0581*** (4.37)
Constant 0.0506 (1.09) 0.0964* (1.91) 0.0587 (1.25) 0.1022* (1.99) 0.1902*** (8.12) 0.2227*** (9.36) 0.2050*** (8.51) 0.2419*** (9.89)
Firm fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes Yes Yes
R2 24.58 24.61 25 25.09 24.05 24.1 24.19 24.25
*** *** ***
F-statistics 119.61*** 129.02*** 136.11 139.71*** 83.33 81.75 81.39*** 79.93***
Notes: The dependent variable is accounting conservatism measure as defined Khan and Watts (2009). All models include firm and year dummies and t-values
reported in the parentheses are calculated with standard errors clustered by firms. ***represent significance level at 1%, **represent significance level at 5%
and *represent significance level at 10%
with higher institutional ownership. These findings imply that institutional ownership Product
complement the relationship between competition and conservatism. market
Our results also exhibit that management ownership is positively associated with
conservatism. These results support the management entrenchment view and contest
competition
incentive alignment hypothesis (Lafond and Roychowdhury, 2008) which proposes that
higher management ownership leads to less disciplined management as managers serve
personal interests and increases the demand of conservative reporting. Our test variable, i.e.
PMC_MO, is positive and significant for both CI and NPC which suggests that competition 675
increases the conservatism when management ownership is higher. However, this effect is
more profound for CI as compared to NPC.
5.2 Additional tests

5.2.1 Competition from existing/potential rivals. Li (2010) suggested that firms face two
distinctive dimensions of competition, i.e. competition from existing rivals (the tactical
moves of the firms within an industry that produce similar goods can potentially impend the
market position of an existing firm) and competition from potential rivals (the profits of the
incumbent firm may be adversely affected when new firms enter the market). We calculate
the proxies for competition from existing and potential rivals following Li (2010) and
Dhaliwal et al. (2014). We calculate proxies for existing and potential rivals by using
principal component analysis on seven proxies. Appendix gives the details of calculation
procedure for these proxies. Competition from existing and potential rivals greatly
influences the financial reporting practices of the firms. Competition from existing rivals
(PMC_EXST) affects the managerial decisions regarding financial reporting because
management may not be interested in revealing the true state of financial position of the
firm to other market participants. In the same way, financial reporting choices are also
influenced by threat of competition from potential rivals (PMC_POTN). If industry
profitability is higher and barriers to entry are lower, more and more firms would be
inclined to join that industry thereby by increasing predation risk. We examine the
association of these two dimensions of competition with conservatism. We also examine the
Dependent variable Competition intensity (CI) Non-price competition (NPC)
PMC 0.2440*** (2.89) 0.0553* (1.85)

Size 0.0084*** (9.46) 0.0064*** (7.74)
Lev 0.0554*** (10.71) 0.0588*** (11.39)
MTB 0.0016*** (3.83) 0.0023*** (4.32)
Big4 0.0047** (2.05) 0.0050** (2.00)
LR 0.0074* (1.84) 0.0029 (0.68)
SOE 0.0063*** (5.72) 0.0066*** (5.78)
Table V.
IFRS 0.0984*** (40.68) 0.1015*** (37.42) This table reports
IFRS_PMC 0.1367 (1.49) 0.0799*** (2.69) regression results
Constant 0.0827*** (4.52) 0.0346** (1.99) examining the effect
Firm fixed effects Yes Yes of IFRS on the
Year fixed effects Yes Yes relationship between
R2 24.18 24.52 competition
F-statistics 129.41*** 119.09*** intensity/non-price
competition on
Notes: The dependent variable is accounting conservatism measure as defined Khan and Watts (2009). All
models include firm and year dummies and t-values reported in the parentheses are calculated with accounting
standard errors clustered by firms. ***represent significance level at 1%, **represent significance level at conservatism for the
5% and *represent significance level at 10% period 2000-2014
11,4
676
CMS
accounting
competition
Tables VI.
types on the
competition on
period 2000-2014
regression results
This table reports
intensity/non-price

relationship between
of various ownership
State ownership Institutional ownership Management ownership
Dependent variable CI NPC CI NPC CI NPC
PMC 0.2352*** (3.74) 0.0029** (2.26) 0.2324*** (3.15) 0.0016** (2.09) 0.1383*** (4.09) 0.0048** (2.17)
IFRS 0.0971*** (43.9) 0.0968*** (44.08) 0.0970*** (41.40) 0.0965*** (40.63) 0.0971*** (43.86) 0.0972*** (43.73)
Size 0.0085*** (9.58) 0.0065*** (7.91) 0.0091*** (9.74) 0.0071*** (7.99) 0.0084*** (9.62) -0.0066*** (7.82)
Lev 0.0560*** (10.80) 0.0574*** (11.12) 0.0530*** (10.04) 0.0551*** (10.57) 0.0616*** (11.94) 0.0625*** (11.68)
MB 0.0016*** (-3.84) 0.0023*** (4.25) 0.0014*** (3.12) 0.0021*** (3.42) 0.0017*** (3.89) 0.0023*** (4.16)
Big4 0.0046** (2.03) 0.0053** (2.11) 0.0041* (1.74) 0.0050* (1.90) 0.0039* (1.68) 0.005* (1.95)
LR 0.0074* (1.83) 0.0036 (0.83) 0.0090** (2.36) 0.0047 (1.16) 0.0053 (1.16) 0.0018 (0.36)
SOE 0.0070*** (-5.78) 0.0068*** (4.15) 0.0049** (4.41) 0.0052*** (4.49) 0.0050*** (4.16) 0.0052*** (4.19)
PMC_SOE 0.1087 (1.43) 0.0047 (0.24)
IO 0.0001*** (2.77) 0.0001*** (2.60)
PMC_IO 0.0016** (2.30) 0.0004** (2.16)
MO 0.0162*** (5.52) 0.0153*** (3.92)
PMC_MO 0.5574*** (3.15) 0.0078** (2.25)
Constant 0.0863*** (4.71) 0.0405** (2.36) 0.0977*** (5.03) 0.0525*** (2.77) 0.0866*** (4.74) 0.0454** (2.53)
Firm fixed effects Yes Yes Yes Yes Yes Yes
Year fixed effects Yes Yes Yes Yes Yes Yes
R2 24.18 24.45 24.23 24.54 24.78 25.06
F 128.28*** 118.82*** 113.76*** 104.17*** 129.63*** 120.04***
t-values reported in the parentheses are calculated with standard errors clustered by firm. ***represent significance level at 1%, **represent significance level at
impact of these dimensions of competition on conservatism with the changes in regulatory Product
regime and ownership structure. market
5.2.2 Competition from existing/potential rivals, International Financial Reporting
competition
Standards and conservatism. Our results show that competition from existing/potential
rivals is positively associated with conservatism. The results also show that IFRS adoption
has reduced the accounting conservatism in China which is consistent with prior results.
The findings further exhibit that competition from existing rivals does not affect accounting 677
conservatism after IFRS adoption as moderating variable IFRS_PMC is insignificant.
However, competition from potential rivals is positively associated with conservatism
before IFRS adoption as well as after IFRS adoption. It implies that competition from
existing rivals shapes conservatism before IFRS adoption only but not after the adoption
(Table VII).
5.2.3 Competition from existing/potential rivals, ownership structure and conservatism.
We examine the impact of state ownership, institutional ownership and management
ownership on the relationship between PMC and accounting conservatism. First, we
examine the impact of state ownership on the relationship between competition and
conservatism. However, we do not find any statistically significant relationship for the
variable of interest, i.e. PMC_SOE. The results imply that competition from existing and
potential rivals play no role in increasing or decreasing conservatism in SOEs. Our results
are consistent with Majeed and Zhang (2016) who suggest that competition does not affect
financial reporting decisions of SOEs (Table VIII).
Our results also suggest that conservatism increases with increase in competition from
existing/potential rivals for the firms with higher institutional ownership. These findings
advocate that institutional ownership complements the relationship between competition
and conservatism. Our results imply that PMC_MO is positive and significant for
competition from existing/potential rivals which suggests that competition increase
conservatism when management ownership is higher. However, this effect is more profound
for competition from existing rivals. Our additional tests support the argument that various
Dependent variable PMC_EXST PMC_POTN
PMC 0.0056*** (2.63) 0.0083*** (4.85)

Size 0.0069*** (7.16) 0.0071*** (6.42)
Lev 0.0542*** (8.78) 0.0535*** (8.52)
MTB 0.0024*** (4.42) 0.0026*** (4.75)
Big4 0.0029 (1.03) 0.0053 (1.93)
LR 0.0061 (1.27) 0.0055 (1.15)
SOE 0.0052*** (4.11) 0.0065*** (5.06)
IFRS 0.1054*** (37.5) 0.0976*** (42.79) Table VII.
IFRS_PMC 0.0006 (0.27) 0.0089*** (5.33) This table reports
Constant 0.0425** (2.13) 0.0530** (2.35) regression results
Firm fixed effects Yes Yes examining the effect
Year fixed effects Yes Yes of IFRS on the
R2 25.62 24.45 relationship between
F 107.92*** 108.11 ***
competition existing/
potential rivals on
Notes: The dependent variable is accounting conservatism measure as defined by Khan and Watts
(2009). All models include firm and year dummies and t-values reported in the parentheses are accounting
calculated with standard errors clustered by firms.***represent significance level at 1%, **represent conservatism for the
significance level at 5% period 2000-2014
11,4
678
CMS
types on the
Table VIII.
period 2000-2014
competition from
existing/potential
regression results
This table reports
rivals on accounting

Dependent variable PMC_EXST PMC_POTN PMC_EXST PMC_POTN PMC_EXST PMC_POTN
PMC 0.0053*** (5.64) 0.0006*** (3.14) 0.0035*** (3.45) 0.0032*** (2.96) 0.0046*** (5.35) 0.0002*** (3.37)
Size 0.0069*** (7.14) 0.0066*** (5.93) 0.0082*** (7.71) 0.0076*** (6.43) 0.0071*** (7.41) 0.0068*** (6.17)
Lev 0.0544*** (8.73) 0.0551*** (8.77) 0.0476*** (7.60) 0.0509*** (8.09) 0.0584*** (9.46) 0.0594*** (9.43)
MTB 0.0024*** (4.41) 0.0027*** (4.91) 0.0021*** (3.48) 0.0026*** (4.36) 0.0024*** (4.27) 0.0027*** (4.75)
Big4 0.0029 (1.06) 0.0056** (2.05) 0.0012 (0.40) 0.0050* (1.75) 0.0031 (1.09) 0.0059** (2.11)
LR 0.0062 (1.28) 0.0045 (0.94) 0.0063 (1.34) 0.007 (1.53) 0.0053 (0.95) 0.0027 (0.49)
IFRS 0.1051*** (39.26) 0.0993** (42.61) 0.1009*** (36.53) 0.0981*** (40.02) 0.1051*** (39.07) 0.0997*** (42.46)
SOE 0.0051*** (3.71) 0.0064*** (4.95) 0.0044*** (3.39) 0.0049*** (3.73) 0.0044*** (3.09) 0.0048*** (3.35)
SOE_PMC 0.0004 (0.33) 0.0005 (0.32)
IO 0.0001*** (4.13) 0.0001** (2.03)
IO_PMC 0.0002*** (6.40) 0.0001*** (4.05)
MO 0.0074* (1.83) 0.0202*** (5.11)
MO_PMC 0.0054** (2.34) 0.0130** (2.19)©
Constant 0.0430** (2.15) 0.0400* (1.75) 0.0665*** (3.03) 0.0609** (2.52) 0.0494** (2.44) 0.0451** (2.00)
R2 25.62 25.3 28.77 25.31 26.09 25.82
F 107.53*** 106.00*** 91.44*** 90.59*** 106.78*** 106.93***
t-values reported in the parentheses are calculated with standard errors clustered by firm. ***represent significance level at 1%, **represent significance level at
dimensions of competition do not play significant role in shaping managerial decisions Product
regarding conservatism in SOEs but play significant role when institutional/management market
ownership is higher.
competition
6. Robustness check
6.1 Alternative measure of conservatism
We also use firm-specific Basu’s (1997) model as second alternative measure of conservatism 679
which has also been used in prior studies like Francis et al. (2013). First we calculate Basu’s
model for each firm from 2000 to 2014 following Zhang (2008) and Francis et al. (2013):
Xi;t
¼ b 0 þ b 1 Dit þ b 2 Rit þ b 3 Dit Rit þ « it
Pi;t1
The coefficients b 2 and b 2 þ b 3 represent sensitivity of income to good news and bad
news respectively. Our proxy for conservatism captures relative sensitivity of bad news to
good news i.e. Con ¼ b 2 þ b 3 = b 2 . Our results, as reported in (Panel A) Table IX, show
that competition is positively associated with conservatism. Moreover, the results also show
(Panel B) that only NPC drives conservatism after IFRS adoption.
Table X reports the results for the effect of various ownership structures on the
relationship between competition and conservatism. Our results are consistent with prior
results that competitive pressure does not influence conservatism in SOEs. Moreover, the
result show that conservatism increases with competition when institutional/management
ownership is higher.
We also use second alternative measure of conservatism to test the robustness of results.
We use accrual based conservatism measure following prior studies (Biddle et al., 2016).
Conditional conservatism is measured as non-operating accruals deflated by total assets.
Then we take average of preceding three years and multiply it with negative one so that
Panel A Panel B
Dependent variable PMC NPC PMC NPC
PMC 0.5170*** (2.95) 0.2103** (2.11) 0.7910*** (2.91) 0.1633** (2.19)

Size 0.0120*** (4.16) 0.0117*** (6.31) 0.0114*** (6.26) 0.0124*** (5.14)
Lev 0.271*** (6.37) 0.0574*** (7.12) 0.0719*** (9.81) 0.0368*** (10.31)
MTB 0.0214*** (3.25) 0.0513*** (4.67) 0.0016*** (3.83) 0.0123*** (2.97)
Big4 0.0045** (2.07) 0.0099** (2.11) 0.0139** (2.14) 0.0153** (2.04)
LR 0.0075* (1.86) 0.0086 (1.35) 0.0092* (1.89) 0.0139* (1.88)
SOE 0.0448*** (4.92) 0.0461*** (5.43) 0.0571*** (4.12) 0.0376*** (3.18)
IFRS 0.0970*** (29.79) 0.0968*** (34.19) 0.0984*** (23.18) 0.1015*** (31.42)
IFRS_PMC 0.2461 (1.39) 0.0862*** (2.79)
Constant 0.0188*** (4.13) 0.0917*** (2.75) 0.1580*** (3.12) 0.0346*** (2.91) Table IX.
Firm fixed effects Yes Yes Yes Yes This table reports
Year fixed effects Yes Yes Yes Yes regression results
R2 19.27 21.70 21.38 22.31 examining the effect
F-statistics 98.17*** 117.63*** 112.43*** 129.09*** of product market
competition on
Notes: Panel A reports results for the dependent variable is accounting conservatism measure as defined
Basu (1997). All models include firm and year dummies and t-values reported in the parentheses are accounting
calculated with standard errors clustered by firms. ***represent significance level at 1%, **represent conservatism for the
significance level at 5% and *represent significance level at 10% period 2000-2014
11,4
680
CMS
accounting
Tables X.
competition
types on the
competition on
period 2000-2014
regression results
This table reports
intensity/non-price

Dependent variable PMC NPC PMC NPC PMC NPC
PMC 0.4287*** (3.14) 0.0129*** (3.26) 0.4734*** (3.05) 0.0022** (2.09) 0.1893*** (3.39) 0.0081** (2.37)
IFRS 0.1476*** (24.17) 0.1298*** (32.18) 0.0673*** (24.73) 0.0731*** (36.53) 0.1271*** (33.35) -0.2172*** (34.13)
Size 0.0185*** (6.58) 0.0165*** (5.21) 0.0191*** (5.74) 0.0133*** (5.89) 0.0139*** (8.62) 0.0183*** (6.32)
Lev 0.0610*** (8.43) 0.0774*** (7.12) 0.0530*** (8.04) 0.0651*** (9.37) 0.0586*** (10.64) 0.0435*** (7.68)
MB 0.0135*** (3.36) 0.0123*** (4.15) 0.0114*** (3.62) 0.0172*** (4.72) 0.0173*** (3.49) 0.0093*** (4.46)
Big4 0.0046** (2.03) 0.0153** (2.15) 0.0441* (1.94) 0.0192** (2.10) 0.0152** (2.13) 0.0211* (1.96)
LR 0.0126* (1.85) 0.0136 (1.24) 0.0190** (2.31) 0.0194** (2.27) 0.0153* (1.86) 0.0165 (0.96)
SOE 0.0070*** (4.18) 0.0068*** (3.35) 0.0149*** (4.41) 0.0061*** (4.33) 0.0173*** (3.37) 0.0092*** (3.89)
PMC_SOE 0.1246* (1.83) 0.0247 (1.24)
IO 0.0014*** (2.89) 0.0021*** (2.51)
PMC_IO 0.0416** (2.29) 0.0124** (2.13)
MO 0.0186*** (4.72) 0.0433*** (3.43)
PMC_MO 0.6410** (2.15) 0.0148** (2.32)
Constant 0.1311*** (4.11) 0.1415*** (2.96) 0.0869*** (4.16) 0.0525*** (2.87) 0.0716*** (3.53) 0.0613** (2.43)
R2 22.18 21.95 23.69 20.77 21.48 23.19
F 118.28*** 124.76*** 103.15*** 116.11*** 112.43*** 119.64***
Notes: The dependent variable is accounting conservatism measure as defined Basu (1997). All models include firm and year dummies and t-values reported in
the parentheses are calculated with standard errors clustered by firm. ***represent significance level at 1%, **represent significance level at 5% and
*represent significance level at 10%
higher values represent higher conditional conservatism and vice versa. Our un-tabulated Product
remain consistent with those reported earlier. Moreover, to deal with potential endogeneity market
issues, we use two-stage least square (2SLS) approach. After using alternative econometric
approach (i.e. 2SLS), the results (un-tabulated) remain consistent.
competition
7. Conclusion
We primarily study the association between PMC and conditional conservatism in Chinese 681
settings. Along with our primary research question we also study the effect of regulatory
regime change and various ownership structures on the relationship between competition
and conservatism. Our study yields some interesting findings. Our results show that CI and
NPC are positively associated with conditional conservatism. Our results also suggest that
industry followers exhibit higher level of conservatism as compared to industry leaders.
These results suggest that when competition is higher, strategic considerations come into
play and influence demand for conservatism.
This study further contributes by examining the effect of regulatory regime change,
i.e. IFRS adoption on the relationship of competition and conservatism which allows us
to examine how competition may shape managerial decisions regarding financial
reporting with changes in regulations. Our results suggest that CI is not associated
with conservatism after IFRS adoption, but NPC shapes conservatism in both pre-IFRS
and post-IFRS periods. The results further propose that neither CI nor NPC affects
conservatism in SOEs. However, our results suggest that CI and NPC are positively
associated with conservatism when institutional/management ownership is higher. We
also document that competition from existing rivals and competition from potential
entrants increase demand for conservative reporting in China. Our study also proposes
that competition from existing rivals is associated with higher conservatism only in
pre-IFRS period. However, competition from potential rivals is associated with
conservatism in pre-IFRS as well as post-IFRS period. Moreover, we find no effect of
competition from existing or potential rivals on the demand for conservatism in SOEs.
But we find significant positive association between these two dimensions of
competition on demand for conservatism when institutional/managerial ownership is
higher.
Our study supports the argument that PMC affects the strategic consideration and hence,
influences managerial incentives for conservative financial reporting (Dhaliwal et al., 2014).
However, our results do not support agency view, political cost hypothesis or monopoly
rents view. Our results also suggest that regulatory changes influence the effect of
competitive pressure on management incentive for conservative reporting. Moreover, the
findings also imply that demand for conservatism changes when ownership structure
changes.
Our study has several practical and policy implications. First, business factors such as
competitive position of firm affect financial reporting practices of the firm. However, the
effect of these factors is influenced by regulatory changes and ownership structure of the
firms. This research has some policy implications for regulators as well. They should focus
on competitive pressure and ownership structure while formulating rules and regulations
for financial disclosure. The study of the factors which influence conservative accounting
decisions is particularly relevant in Chinese institutional environment (along with other
emerging economies as well) where banks are major source of finance and conservatism
plays a crucial role in debt covenants. Our study also augments the decisions of investors
and lenders by helping them to understand the nexus of competition and conservatism.
CMS This study has certain limitations as well. First, our measures of competition are
11,4 calculated on the basis of listed firms only. An important limitation may be the unique
institutional environment of China. Although China is the second largest economy of
the world but financial disclosure and business practices along with state intervention
in corporate sector and capital market make it quite unique. Consequently, findings of
this study may not be generalized for other economies. However, the limitations offer
682 potential for future research and may aid in understanding the nexus of competitive
pressure and financial disclosure.
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Appendix Product
market
competition
Descriptive stats Mean Median Q1 Q3 SD N
Descriptive statistics
HHI 0.0241 0.0075 0.0558 0.0025 0.0215 21,772
NF 71.7359 65 47.6084 31 97 21,772
687
C4 0.4525 0.4224 0.1729 0.3298 0.5489 21,772
MKTS 25.7862 25.8440 1.1886 24.9556 26.6755 21,772
PPE 6.92E + 07 6450030 4.86E + 08 1902063 2.26E + 07 21,772
CAPX 1.50E + 07 1654640 1.02E + 08 523699 5435911 21,772

INTNG 676942.9 0 3737673 6536.704 49766.2 18,549
PMC_EXST 1.96E-10 0.1814 1.2014 0.8664 0.6675 20,579
PMC_POTN 3.60E-10 0.4054 1.5223 0.4836 0.2473 18,549
HHI NF C4 MKTS PPE CAPX INTNG
Correlation matrix
HHI 1
NF 0.2490 1
C4 0.5654 0.4698 1
MKTS 0.1811 0.5365 0.050 1
PPE 0.2035 0.1116 0.1352 0.0661 1
CAPX 0.2796 0.1055 0.1446 0.0672 0.9688 1
ITNG 0.2357 0.0476 0.1063 0.0971 0.3755 0.4002 1
PMC_EXST 0.4550 0.7011 0.9129 0.1027 0.2318 0.2377 0.2187
PMC_POTN 0.1955 0.1597 0.2033 0.1897 0.6039 0.5932 0.7358
HHI NF C4 MKTS PPE CAPX INTNG
Standardized scoring coefficients Table AI.
PMC_EXST 0.3687 0.4642 0.4812 0.2851 Summary of
PMC_POTN 0.0831 0.6227 0.6304 0.4560
principle component
Notes: Principal components are rotated using orthogonal rotation technique analysis
Principle component analysis

We calculate proxies for competition from existing and potential rivals following Dhaliwal et al.
(2014) and Li (2010) by using principle component analysis. The principle component analysis is used
to create a single variable by using various industry-level variables. These variables are closely
related but they measure different aspects of competition. The proxy for competition from existing
rivals (PMC_EXIST) is first component produced from four variables multiplied by negative one.
These variables include HHI which is calculated as sum of square of market share of all the firms in a
given industry, four firms concentration ratio (C4) which is measured as summation of market share
of four largest firms in a given industry, total number of firms in the industry (NF) and product
market size (MKTS), calculated as the natural log of sales of the industry. We calculate our measure
for competition from potential entrants (PMC_POTN) as the negative of the first component
produced from four variables, i.e. weighted average PPE (plant, property and equipment), weighted
average capital expenditures (CAPX), product market size (MKTS) and industry incremental
intangibles. Although Dhaliwal et al. (2014) and Li (2010) used R&D expenditures, following Yang
et al. (2015), we use intangibles because of following reasons. First, our sample starts from 2000, but
CMS the disclosure of R&D in China started from 2007. Moreover, as suggested by Yang et al. (2015), the
11,4 disclosure of R&D is incomplete and mostly missing for large number of firms during the sample
period. So because of missing and incomplete disclosure of R&D expenditure, we do not use this data
in our measurement of competition from potential entrants. Yang et al. (2015) suggest that use of
incremental intangibles, for Chinese firms is reasonable substitute because “invisible assets record all
the intellectual property right driven by R&D input, and R&D inputs are capitalized to the intangible
688 assets, the upgrades of invisible assets reflects the R&D inputs”. Principal components are rotated
using orthogonal rotation technique. Following Li (2010) we retain components with eigenvalues
greater than one (Table AI).
Corresponding author
Muhammad Ansar Majeed can be contacted at: ansarmajeed5@gmail.com
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Product market competition and financial statement comparability. Management Decision 56:11,
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Chinese Management Studies

Product market competition, regulatory changes, ownership structure and

regulatory changes, ownership structure and accounting conservatism: Evidence from

*Related content and download information correct at time of download.

Muhammad Ansar Majeed

2.2 Ownership structure in China

valuable (particularly for NSOEs) in China.

higher accounting conservatism.

3.3 Competition, state ownership and conservatism (principle–principle agency conﬂict)

3.4 Competition, institutional ownership and conservatism

666 3.5 Competition, management ownership and conservatism

4.1 Measurement of product market competition

4.2 Measurement of conservatism

timeliness to construct a ﬁrm-year measure of conservatism:

C Score ¼ b 3 ¼ m 1 þ m 1 Sizei þ m 1 MBi þ m 1 Levi

The annual cross-section regression model used is as follows:

þ Di Ri ðl 1 þ l 1 Sizei þ l 1 MBi þl 1 Levi Þ þ ðd 1 Sizei þ d 2 MBi

4.3. Estimation model and control variables

CONit ¼ b 0 þ b 1 PMCit þ b 2 Sizeit þ b 3 Levit þ b 4 BMit þ b 5 AQit

4.4 Sample description

4.5 Descriptive statistics and correlation matrix

Variables Mean Median SD P25% P75% N

CON 0.0399 0.0249 0.0818 0.0000 0.0623 16802

5. Results and discussion

Note: Italic represent signiﬁcant at 10% or lower

conservatism for the

conservatism for the

5.2 Additional tests

Dependent variable Competition intensity (CI) Non-price competition (NPC)

PMC 0.2440*** (2.89) 0.0553* (1.85)

conservatism for the

Dependent variable PMC_EXST PMC_POTN

PMC 0.0056*** (2.63) 0.0083*** (4.85)

conservatism for the

PMC 0.5170*** (2.95) 0.2103** (2.11) 0.7910*** (2.91) 0.1633** (2.19)

conservatism for the

Business Finance & Accounting, Vol. 42 Nos 1/2, pp. 167-203.

voluntary disclosure of auditors’ reports on internal controls”, China Journal of Accounting

CAPX 1.50E + 07 1654640 1.02E + 08 523699 5435911 21,772

HHI NF C4 MKTS PPE CAPX INTNG

Principle component analysis

1. MajeedMuhammad Ansar, Muhammad Ansar Majeed, YanChao, Chao Yan, TauniMuhammad

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PMC 0.0056* (2.63) 0.0083* (4.85)

PMC 0.5170* (2.95) 0.2103 (2.11) 0.7910* (2.91) 0.1633 (2.19)