The Research On The Accounting Conservatism's Influence On Financing Cost

Under the conditions of capital markets'vigorous development and the increasingly dispersed equity, Accounting, as a role of investor protection tool, is becoming more and more significant. Where enterprise as a contract body, its sound accounting information, which can helps relieve information asymmetry, and reduce the incomplete degree of contract, has an important function of governance. Besides that, stable accounting information can achieve balanced corporate governance through the selection of Corporate Governance. Accounting conservatism can implement the objective of investor protection by playing the internal governance function and the selection of external governance mechanism. So, this article explores the positive role of accounting conservatism in economic activities through the research of its economic consequences.Information risk theory suggests that the information risk from information asymmetry cannot be distributed; this will lead to adverse selection behavior of investors, which means that under the condition of information non-transparency, they will protect themselves by increasing the price of funds (also called corporate finance costs). This thesis aims to makes a probe into the influence of accounting conservatism of Chinese listed companies to financing cost by empirical study. Thus the thesis can proposes some theoretical and empirical supports on firms'choosing accounting policies and governments'establishing regulations as well as improving supervision.Using MTB as independent variables, this paper analyzes the sample of Chinese A-share firms during the 2001-2008 periods (Since calculation of equity cost need next two years'data, equity cost data in 2009 and 2010 is unavailable) through statistical way and hypothesis tests. This thesis uses the way of combining theory with practice to research the impact of conservative accounting policies on the equity cost and debt cost and the differences impact between the two. Finally, proposes number of observations and recommendations on how to cultivate corporate demands on conservative accounting information and improve the quality of accounting information.From the empirical results, it shows negative correlation between accounting conservatism and corporate finance costs; compared to the debt cost, equity cost is more sensitive to the changes of accounting conservatism. This thesis draw the conclusion as followed: Firstly, information risk as a system risk which cannot be dispersed, its market risk premium will increased corporate equity cost and debt cost. Accounting conservatism can reduce these two financing cost effectively. Secondly, financing cost is the main tool for shareholder to evade risk; on the other hand, financing cost may not be the main tool for bank as a creditor to evade risk.