Empirical Research Of Accounting Conservatism And Debt Covenant In China’s Real Estate Listed Companies

As the international financial crisis caused by the US subprime mortgage crisis continues affecting the economic development of the world, each participant of the capital market has a clearer understanding of the reasons leading to the crisis. One of them is that the bank did not fully evaluate and understand the implicit loan risk. At present, the rapid development of China’s society and economy is increasingly affected by the risks from the capital market. How the participants of China’s financial market using the conservatism principle to achieve robust accounting information, to enhance market competitiveness and protect the legitimate rights and interests. How the both sides of debt covenant to assess debt risk rationally, to make evaluation in advance using accounting information and to prevent hidden risks. These issues should be considered and discussed by scholars.The effective use of accounting conservatism principle can help ease the conflict between the creditors and shareholders. On the one hand, prudent accounting information provided by companies could reduce the monitoring costs for the creditors in the process of debt covenants to protect their own interests. On the other hand, the prudent accounting policies are conducive to reducing enterprise development constraints and provide a vast space for the rapid development and enhancing corporate value. By studying the relationship between accounting conservatism and debt covenants of the two, can make people better understand the interaction between the two in action. Moreover, taking into account the actual situation of our country and industry background, China’s real estate business is accounted for a significant proportion of corporate loan financing, which has a pivotal role in the development of our national economy. In other words, the developing condition of real estate industry can even be the dominant standard to the comprehensive strength of China. Therefore, real estate companies are selected as the study samples by this paper. By analyzing the theories of accounting conservatism and debt covenants, this paper would establish empirical models to explore the interaction of accounting conservatism and debt covenants in the real estate industry.This paper selects the financial data of listed real estate companies from 2011 to 2013 as the study samples and builds empirical models to study on the relationship between accounting conservatism and debt covenants by using the method of combing qualitative analysis and quantitative analysis. The empirical results show that: the amount of debt covenants significantly affect the robustness of accounting information in the real estate business. The greater the amount of the contract signed, the stronger the accounting conservatism would be. The Contract term has a negative correlation with the corporate accounting conservatism. The higher proportion of short-term borrowings in the real estate companies, the stronger its accounting conservatism. Debt cost also has a negative correlation with accounting conservatism, that is, the higher accounting conservatism a company has, the lower debt cost it also would have. This paper could obtain the relevant conclusions based on empirical results and make suggestions to ease the conflict and to improve accounting conservatism from the perspective of the two sides’interests.