Relationship Between Accounting Conservatism And Debt Covenants

There are divergent interests exited beteew in creditors and shareholds．Shareholdstend to pursue the rapid development of the company to make a profit，regardless of therisk of development,but the creditor is more concerned about whether the money is ableto recover their lending.Creditors are often reluctant to do a greatrisk transactions.but dueto the creditor source of information only published accounting information.therefore,beconsidered from the point of view of the creditor side.the information the need to fullyreflect the risk assumed by the Company’s accounting information,which has a robustaccounting information.Especially in China,an important part of commercial banks ascreditors.the origin of the financial crisis is that banks do not have a full understandingand evaluation of loan risks implied by.Therefore,how to revent risks in the credit anddebt.we should focus on how to prevent,how to make better use of accountinginformation,we should focus on consideration.In the debt contractual relationship,the creditors of this information askmmetry.resulting in a demand of accounting.conservatism.,debt covenantsspecific projects,whatfactors affect the accounting conservatism and accounting conservatism will producewhat kind of debt covenantsthe economic consequences of an empirical study on theconnection between prudence and debt covenants.Consider the amount of owned andowned matureness prudence,also combined with China’s actual situation,the nature ofproperty rights on the relationship between the both.Accounting conservatism the debtcovenants economic consequences,an empirical study the impact of accountingconservatism on the cost of debt.In this paper, the method of combining qualitative analysis and quantitative analysis,analysis of the2009-2011A-share listed company’s accounting conservatism and debtcontractual relationship. The empirical study found that the amount of debt affect theprudence, the specific relationship between the greater the amount of debt covenantsconcluded, accounting conservatism, debt maturity and accounting conservatism alsosignificantly related to shorter the period, firms tend to choose more conservativeaccounting policy, but the sample was divided into state-holding enterprises and non-state-owned holding enterprises, respectively, of debt maturity accountingconservatism, the State-controlled would undermine the prudence, a high proportion ofshort-term borrowings non-state-owned holding enterprises will choose moreconservative accounting policies,and a high proportion of long-term loans of state-ownedholding enterprises accounting conservatism is relatively high. The connection betweenprudence on the cost of owning, the strong accounting conservatism will reduce the costof debt..