Research On The Influence Of Accounting Conservatism To The Enterprise Financing Costs

In the vigorous developing capital market, as a role of the protection tool ofinvestors, accounting is becoming more and more significant. The more soundthe enterprise’s accounting information, the more it can reduce its contractincomplete degree, and relieve its information asymmetry. As a result,conservatism has always been a hot topic of the academic and practice circles.China’s2006new enterprise accounting standards in the second chapter of “thequality requirements of accounting information” pointed out:“enterpriseaccounting for transactions or events recognition、measurement and reportingshould adhere to the conservatism principle, should not overstate its assets andincome, or understate its liabilities and expenses”. It’s the first time we takeconservatism as one of the accounting information quality, also make a furtherenhance of its status in our country’s accounting field.Financing is an economic activity, which the enterprise from its ownbusiness situation and financing policies, using specific financing means to makeproduction and management capital. Financing cost is the cost for which theenterprise should pay to obtain the right to use the funds required. From theinformation risk theory, we know that information risk caused by informationasymmetry is not dispersed system risk, in face of the present situation thatinformation is not symmetric, investors will compensate the risk by increasingthe price of the capital to protect their own interests, which will increase theenterprise’s financing cost. The prudent accounting information can effectivelyreduce the information risk, which will reduce the enterprise’s financing cost.This article mainly through the empirical method to study the A sharescompanies in our country, with necessary theoretical support, at the same time,analyzing the influence of conservatism to the enterprise financing cost from twoperspectives. This paper takes the A shares of listed corporation data of Shanghai and Shenzhen of the2010-2012years as the study sample, and make anon-the-spot investing of conservatism’s economic consequences from twoaspects: the debt cost and the equity cost. This article uses Basu’s earning andstock return method and the accrued items method to measure accountingconservatism, and then establishes the debt cost and equity cost regression modelrespectively, making an empirical study on the influence of accountingconservatism of the debt cost and the equity cost as well as its differences. Thisarticle aims to provide empirical support for the economic consequences of theextent of conservatism, and providing theoretical support and empirical evidencefor the policy system department and the company.From the empirical results of the study, this thesis draws the followingconclusion: Firstly, the accounting conservatism exists in our country’s listingcorporation, and has become the basic characteristics of the financial report.Secondly, the higher the level of accounting conservatism, the lower the cost ofdebt financing, accounting conservatism is negatively related to the cost of debt.If the enterprise’s conservatism level is high, accounting information can reflectthe adverse situation in a timely manner, the creditors can make timely respond,so as to avoid losses, and reduce risks, the creditors are willing to provide lowcost loans to the debtor. Thirdly, Accounting conservatism is negatively relatedto the equity cost, the higher the level of conservatism, the lower of informationasymmetry between enterprises and investors, investors do not need to spend toomuch to search information, and will reduce the required return on investment,as a result, enterprise equity cost will be lower. Fourthly, there are differenteffects of conservatism on the debt cost and the equity cost, relative to the debtcost, equity cost is more sensitive to conservatism. This also shows that thecreditors and shareholders ability to obtain information and guard against the riskis different, the demand and dependent for accounting information differencesalso exist.Based on the research theme, combined with empirical research andanalysis, this article puts forward some policy suggestions, aims to guide thecompany to enhance the conservatism of their accounting information, and findthe effective way of lowering the company’s financing cost, to improveefficiency of the corporate finance. The suggestion contains: perfect the company’s internal governance, to improve the conservatism of accountinginformation; express the shareholders’ initiative, to reduce the company’sfinancing costs; specification the information disclosure system, to guarantee theinformation disclosure quality; complete the accounting information evaluationsystem, to guide the companies improve their accounting informationconservatism.