Monetary Policies, Accounting Conservatism And Corporate Bank Loans

Accounting conservatism is a basic principle of the recognition and measurement of accounting practices, which has a big influence on traditional accounting with a long time. And it is also one of the most influential principles of accounting practices. After Watts (1933) put forward relevant research framework and Basu (1997) construct accounting conservatism model, there are a large number of foreign literature focusing on the measure of accounting conservatism, the motivation of accounting conservatism and its economic consequences. In recent years the domestic scholars also proved the existence of accounting conservatism and the influence of debt covenants on it through China’s capital market data. At present there is also a small amount of domestic empirical research literature of the economic consequences of accounting conservatism. However, both the study on the Influencing factors of accounting conservatism and the study on the economic consequences of it, mostly only consider the micro-level factors, focusing to the company level characteristics or comparative studies between countries, and less consider the effect of macroeconomic environment. Monetary policy as a systematic factor will affect the behavior of the enterprise as a microeconomic entity. With the fluctuations of monetary policy, the macroeconomic environment faced by the enterprises change. Therefore, the behavior of companies, shareholders and creditors may also change. In different stages of monetary policy, the performance of accounting conservatism will be different then? In addition, the monetary policy affects debt financing of the enterprise by regulating the money supply and credit aggregates, while bank loans are more sensitive to the volatility of monetary policy. Especially, in monetary policy tightening period, enterprises obtain bank loans more difficultly. At this point, the banks also pay more attention to risk controls. When banks analyze the factors affecting enterprise risk, will prudent accounting policy be considered? Will the enterprise with high accounting conservatism more easily meet the specific factors to be examined by the bank in the risk assessment process? Thus, will they be more favored by banks? Based on this, this paper attempts to study the performance of accounting conservatism and the the influence of accounting conservatism on bank loans during the different monetary policy period, to provide some useful inspiration for enterprises, banks, and policy makers.This study makes the stocks of companies listed in Shanghai and Shenzhen stock markets from2005to2011as the objects of study to examine the above two questions, defining the year of2006,2007,2010, and2011as tight monetary policy years and Using Basu model, Khan and Watts model and total accrued model to measure accounting conservatism. According to the study, we find that firm accounting policies become conservative when central bank tightens the monetary policies and in tight monetary policy periods, accounting conservatism helps firms obtain better access to bank credits.This paper combines macroeconomic policy and the behavior of microeconomic entity, which enrich the accounting academic research topics range. The study could help us better understand macro policies how to affect economic development at the micro level, and provide some useful inspiration for policy makers. At the same time, the conclusion provides an effective way to solve the difficult question of business loans.