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Research on the Difference of Accounting Conservatism on the Debt and Equity Financing Cost

Author: ZhangZuoZuo
Tutor: QiuYuLian
School: Wuhan University of Science and Technology
Course: Accounting
Keywords: Accounting Conservatism the debt financing cost the equity financing cost
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 50
Quote: 0
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Abstract


Under the background of the development of China’s capital market and the internationalconvergence of China’s accounting standards, the conservatism of accounting information plays amore and more important role in corporate financing, While equity financing and debt financingis a major financing channel of listing Corporation. Accounting conservatism can ease theinterest conflict of the different contracting parties and reduce their agency cost and informationasymmetry risk, so it can achieve a governance mechanism of the investor protection and thecreditor protection. Therefore accounting conservatism can reduce the expected rate of return ofthe investors and creditors, that is to say it will reduce the cost of the equity financing and thedebt financing. In addition, as the different main body of the Corporation contract, there must bemany differences in the demand of accounting conservatism between the investors and thecreditors. Taking accounting conservatism as the breakthrough point, we will research into theinfluence of accounting conservatism on the debt and equity financing cost. Then we analyze theimpact of accounting conservatism on the differences between the two in-depth. This paper aimsto provide a new perspective to study the economic consequences of accounting conservatism.The paper mainly applies both normative research method and empirical research method.First of all, the paper analyzes the relationship between accounting conservatism and financingcost from three aspects: principal-agent theory, contract theory and theory of risk signaling. Then,three models are established, respectively test the correlation of the accounting conservatism andthe debt financing cost, the correlation of the accounting conservatism and the cost of equityfinancing and differences in the degree of conservatism negative correlation with debt financingand the cost of equity. This paper draws the following conclusion: Firstly, the accountingconservatism of high level reduces the debt financing cost of the Listing Corporation. Secondly,the accounting conservatism of high level reduces the equity financing cost. Finally, theinfluence degree of accounting conservatism on the cost of equity financing is significantlyhigher than that of its influence on the debt financing cost.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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