Influence Of Accounting Conservatism On The Cost Of Debt

As the economic crisis happened, people pay more attention to the banks’ credit behavior. After the crisis, the debt level of our country rises rapidly, and the debt risk gradually increases too. To prevent the risk, our country’s lever ratio is still under control. However the China banking has attach importance to the bad debt to strengthen risk control. As the risk happens, marketing environment has changed and the enterprises’debt paying ability descends. So the banks take more attention to the accounting information to avoid the risks. Accounting conservatism is one of the traditional principle in accounting recognition and accounting practice, it has an extensive influence. So, banks may take accounting conservatism into consideration when analysis the risk of enterprises carefully and synthetically. That is to say, it is more suitable for the banks’demand if adopt more conservative accounting policies. But if the bank can not recognize it, or don’t rely on the accounting information to relive the unsymmetry, the conservative accounting policies may result in behaving badly and getting more cost. Further, with the deep research on it, accounting conservatism is divided into conditional conservatism and unconditional conservatism. The former studied about the exist, measures and reasons, this paper is about one part of the consequences and extend on it. Most papers study the conditional conservatism, this paper tries to research whether all of the two kinds of accounting conservatism can reduce the cost of debt based on analyzing the influence of accounting conservatism on the cost of debt. In addition, we study whether there is a difference between non-state-owned and state-owned companies about the influence of accounting conservatism of the cost, and gets some beneficial enlightenment by the empirical analysis.Based on Khan and Watts’s model to measure the conditional accounting conservatism, and based on the book to market ratio method for measuring unconditional conservatism, this paper studies two kinds of accounting conservatisms’ impact on the cost of debt. The results confirm that, in the years 2011-2013, China listing Corporations’ accounting conservatism are common, they all reduce the cost of debt in a significant correlation, comparatively, conditional conservatism plays a better role. Regardless of price model or the perspective of income model, accounting conservatism is useful in reducing the cost of debt. It shows that, when use the accounting conservatism in a moderate level, its function can be presented. So, the accounting conservatism in fact to a certain extent, has improved the quality of accounting information, and it may make a better protection for creditors. Compared with the state-owned company, the accounting conservatism of non-state-owned does more work.