Accounting Conservatism,Default Prediction And Cost Of Debt

Today,as the aftermath of the global financial crisis has not been dissipated,debt financing is still the main financing channel for Chinese firms.However,in order to strengthen risk control,banks and other financial institutions have raised the threshold and interest rate of loans,which cause firms difficult and costly to obtain financing,and greatly affect the motivation of enterprises to participate in high-quality economic development.Under this background,how to effectively alleviate the debt financing dilemma of enterprises has become a realistic issue of great concern.Driven by the view of decision-usefulness,accounting information is an important basis for drawing up details of debt contracts,and contractors have a keen sense of the quality of accounting information.As an important index to evaluate the quality of accounting information,accounting conservatism will inevitably have a significant impact on debt financing.Based on this,this paper will take accounting conservatism as a breakthrough to alleviate the problem of debt financing,and proceed from the default prediction function of accounting conservatism,deeply analyze the impact mechanism and actual effect of accounting conservatism on the cost of debt.The main research method of this paper is the combination of theoretical analysis and empirical investigation.Based on the previous findings and the data of Chinese A-share listed companies from 2007 to 2016,this paper first constructs an analytical framework which describes the logical relationship among accounting conservatism,default prediction and cost of debt,and then empirically tests the default prediction function of accounting conservatism and its impact on the cost of debt.The results show that accounting conservatism decreases the probability of repayment default and cost of debt;when firms default on debt repayment,the negative impact of accounting conservatism on the cost of debt will be partially offset,which shows that debt default weakens the impact of accounting conservatism on the cost of debt.At the same time,it proves that the predictive effect of accounting conservatism on default can have a significant impact on the cost of debt.By using property rights,scale of intangible assets and analyst tracking numbers as categorical variables,further analysis shows that in the situation where information asymmetry is more serious,the weakening effect of debt default on the relationship between accounting conservatism and cost of debt is more obvious.Compared with the existing literature,the innovation of this article lies in following several aspects:(1)Based on the financial data of Chinese listed companies,this paper empirically tests the relationship between accounting conservatism and debt default,and points out that accounting conservatism has the function of default prediction,which to a certain extent enriches and develops the research of accounting conservatism in protecting the interests of creditors.(2)Starting from the default prediction function of accounting conservatism and combining with signaling theory,this paper deeply analyses the influence path of accounting conservatism on the cost of debt and gives empirical evidences,which to a certain extent enriches and develops the research on the influence mechanism of accounting conservatism on the cost of debt.(3)By introducing information asymmetry as a categorical variable,this study further explores the weakening effect of debt default on the default prediction function of accounting conservatism,which have deepened the previous knowledge of how the default prediction function of accounting conservatism affects the cost of debt.