Empirical Research Of Accounting Conservatism And Debt Covenant

Accounting conservatism is an important principle in the financial reporting. Underthe new accounting standards, accounting conservatism is positioned clearly as acharacteristic of accounting information quality. In recent years more and more accountingscholars began to pay attention to accounting conservatism. Current research focuses onthe existence and impact factors of accounting conservatism, and there is very littleresearch on economic consequences. The debt contract is signed on the basis of theinformation asymmetry between the creditor and the debtor, which may damage theinterests of creditors. The parties sign a contract from their own interests, which will affectefficiency of signing a contract. The paper will try to research on the relationship betweenaccounting conservatism and the debt contract on accounting conservatism.Based on the theory of information asymmetry and creditor protection, severalhypotheses about relationship between accounting conservatism and the debt contract areproposed. Taken the data from listed companies of manufacturing industry in China during2006-2011as a sample, this paper selects accumulated three years of negativenon-operating accruals as the measure of conservatism. This thesis empirically tests therelationship between accounting conservatism and the debt contract by using of descriptivestatistics, correlation test and mixed linear regression. Furthermore, this paper also tests theattributes of financial crisis impact on the relationship between accounting conservatismand the debt contract. The main research finding include:(1) Accounting conservatismsignificantly improve the possibility of new loans of listed companies.(2) Accountingconservatism can help enterprises to obtain long-term loans.(3) After the financial crisis,the influence of accounting conservatism to the debt contract is weak. This thesis not onlyprovides new empirical evidence for understanding the economic consequences ofaccounting conservatism, and expands the idea of improving the debt contract behavior.