5. Conclusions
This study used a sample consisting of all firms listed on the Taiwan Stock Exchange between 2006 and 2014, excluding financial and utility industries, to analyze the roles of controlling shareholders as either minority shareholder entrenchers or monitors in the relationship between conservative accounting practices and cash holding value. This is an especially meaningful issue in countries such as Taiwan. To the best of our knowledge, this is the first attempt to document the relationships among accounting conservatism, cash value and controlling shareholders. Our results, without considering controlling shareholders, support H1 and are consistent with the findings of Louis et al. (2012); in other words, accounting conservatism enhanced corporate cash value in the sample firms. When controlling shareholders were considered, our findings support both hypotheses H2a and H2b depending on the proportion of control-affiliated directors, the agency problem, and financial crisis. Generally speaking, the incentive effect of controlling shareholders, H2b, is supported at a relatively low proportion of control-affiliated directors, whereas the entrenchment effect, H2a, is confirmed at a relatively high proportion of controlaffiliated directors. However, the entrenchment effect will dominate when the agency problem and financial crisis are considered. To examine the link between agency problems and cash value, we performed an additional test to determine whether the relationship between accounting conservatism and cash value depended on free cash flow and firm growth. In this case, the positive relationship weakens and becomes negative for firms with serious agency problems as measured by high levels of free cash flow and low firm growth, with the exception of the extremely high control-affiliated directors group. Our evidence indicates that the presence of controlling shareholders lowers (at least in part) the positive relationship between accounting conservatism and cash value for firms with an agency problem. This deterioration becomes more obvious with serious agency problems and during the financial crisis, thus supporting an entrenchment hypothesis of controlling shareholders (H2a). Collectively, the entrenchment effect will become prevailing when the agency problem and financial crisis are considered. Our empirical results not only confirm a positive relationship between accounting conservatism and cash value in the absence of controlling shareholders but also suggest that ignoring the important role of controlling shareholders can result in the wrong conclusions about the influences of accounting conservatism on cash value, especially in countries such as Taiwan in which a large percentage of firms are characterized by concentrated ownership structures.
