Accounting Quality, Collateral And Financial Constraints

The literature have already discussed the corporation financing constraints in the view of accounting quality and collateral, but none have studied the relation between these two. In practice, the corporation need to mortgage assets and provide financial reports when the corporation wants to finance. Based on this fact, this paper focus on what is the relationship between the collateral and accounting quality. This is also the innovation of the paper.The paper using the Principal-agent Theory and Asymmetric Information Theory to analysis the relation between accounting quality and financial constraints, the relation between collateral and financial constraints. We find that when improving accounting quality, the information asymmetric will reduce, the transparency is increasing, the financial constraints is falling. The collateral can reduce the financial constraints from two aspects. On one hand, for banks, the collaterals which have screening function can reduce the adverse selection problem. On the other hand, the collateral can use as ex post guarantee. Once the corporation default or bankruptcy, the investors can use the collateral to auction which will reduce the loss of the investors. This paper using the financial data from the financial report of the listed companies to analysis finds that with the improving of accounting quality and the collateral, the financial constraints falls. It also finds that the collateral value has a lower impact on financial constraints for the firms with higher accounting quality. Further, through the st udy of different nature of firms, it finds that for the state-owned enterprises, the accounting quality and collateral’s effect reduce. For the non-state-owned enterprises, high level accounting quality and collateral can reduce the financial constraints. Moreover, for those firms which have high level of accounting quality, the effect of the collateral to the financial constraints will reduce.