Financing Cost Impact Study Accounting Conservatism

Accounting conservatism has a long and significant impact on the accountingtheory and practice. Many researches have been done about accounting conservationand they mainly focus on four aspects: existence, reason, measurement method andeconomic result. However, the scholars in China are restricted to the reason andexistence of accounting conservatism.The investors are facing increasing ricks in China since the deterioration ofbusiness environment after the financial crisis. The risk is even more significant whileconsidering the imperfection of legal system, and the financial situation of localenterprises. The choice of accounting policy in the enterprise can affect its financingcost and it can also affect the financial statement data and decisions of investor onproduction management such as efficiency, solvency and profitability, if not more.The empirical test of this basic selecting the public company’s on Shanghai andShenzhen’s stock market from2009to2012for object of study, which has2730objectsfrom683companies’ financing costs divide into the cost of debt and equity. This articleis trying to study the existence of the conservatism and the influence on the debt costand equity by focusing on the empirical test with, combining with theory analysis. Itsummarizes the research conclusions and puts forward the suggestions according to thetheoretical and empirical analysis. Limitations in this thesis and future direction ofresearch about accounting conservatism are also pointed out.From the empirical results, The conclusions can be arrived as followed: firstly, it isfound that firms accounting conservatism; Secondly, firms with more conservativeaccounting response more quickly by reducing the flow of cost of debt, in other words,conservatism helps decrease debt cost in a firm; Third, firms with more conservativeaccounting response more quickly by reducing the flow of cost of equity, in other words,conservatism helps decrease equity cost in a firm.