Investigation of Financial Conservatism in the United Kingdom and China - Dissertation Example

In considering the business world, it is worth noting that its environment of microeconomic activities lies within an unvarying state of transformation. This means therefore that the particular indicators which served as tremendous financial assessment tools in a previous study can bear different meanings thereafter, hence many factors die and are born so as to maintain limits of time variations (Ahmed, A. S., B. K. Billings, R. M. Morton, and M., 2009). According to Easterby-Smith, an agency faces challenges in; organizing and coordinating staffs, addressing diverse and unforeseen problems in ways that assure the continuity of any course of action, maneuvering successfully between cultural, financial, and technical impediments, and lastly recovering an organization from fragments (Mark Easterby-Smith,2012).

Financial distress is the reality that agencies cannot accomplish these achievements but rather struggle to meet financial obligations in a timely manner.Prospective macroeconomic productivity cannot take into account the unexpected determinants such as supply and demand or environment, all of which give represent the highs and lows of life itself. The variables provide a distinct outline that can be used in comparing the actual from the perspective (Balkrishna, H., Coulton, J.J., and Taylor, S.L., 2007).

For this reason, financially conservative agencies tend to hold more cash reserves and minimize leverage. Today, interpretations of Finance and Accounting that are used to make important decisions are based upon different philosophies of macroeconomic applications. For the purposes of this study, applications of the theories of Financial Conservatism and Financial Distress used in Business Finance are analyzed for firms in the United Kingdom (UK) and in China. The empirical analysis consists of the financials of 100 companies from the fiscal years 2007 and 2009 (Ball, R.

, Bushman, R.M., and Vasvari, F.P., 2008a). 1.1 Background of the StudyA universal principle of Business is to minimize possible risk and loss. Agencies adopt different structures based on personal beliefs and accomplish the principle by the choice of financial policy and order of operations. Financial strategies are also based on perspectives of the future stability of the industry and the economy (Leuz, C., Nanda, D., and Wysocki, D.P., 2003). A changing market can have various causes. Recently, the market has changed due to failing economies, advances in technology, and a shift in public perception of environmentalism.

Within an economically strong business environment, agencies have the ability to specialize and concentrate on services or products that are of disposable returns. Thus, for companies to capitalize on an over-inflated market, their product and service offerings must make sense. A financial crisis depicts duration in the economic calendar when there is incessant economic turndown (Nikolaev, V., 2007). Factors that may lead to an economic downturn include natural disasters, investors’ spending trends, and the commonwealth.

Between 2007 and 2009, the world economies were quite low.