Monetary Policy, Accounting Conservatism And Debt Financing

With the continuous development of the economy and society in China, internal financing has beenunable to meet the company’s development needs. Debt financing in bank is an important way forChinese quoted company’s external financing. That the accounting information which is reflected theenterprise’s financial situation and result of operation, plays an important role in the judgment of thedebtor’s solvency, and is an important basis for the bank to evaluate the business solvency. Accountingconservatism is an important index on the quality of accounting information. After the outbreak of thefinancial crisis, more and more scholars began to reassess the role of accounting conservatism in improvethe quality of accounting information. The enterprises which carry out conservative accounting policy,can reduce the information asymmetry between the both sides, and send a positive signal of corporateprofitability and solvency to the creditor, and strengthen the bank’s confidence for enterprise loans. Forrobustness economic consequences of accounting research, mostly just consider the individualcharacteristics of the micro level. Monetary policy is one of the country means of regulatingmicroeconomy, it will inevitably affect the enterprise which is the microscopic main body of thebehavior. Monetary policy, as the one of the means of macroeconomic regulation, will influences thebehavior of enterprises and creditors. Monetary policy turns loose to tight, for one thing, enterprisefinancing demand increases, for another, bank lending will weakens. At this time, whether the increase ofaccounting conservatism helps enterprises get more bank loans or not, is a topic which deserves to study.Firstly, the paper reviewed the related literature on monetary policy, accounting conservatism anddebt financing. Secondly, it put forward the research hypothesis and construct the research model, whichbased on information asymmetry, principal-agency theory and the theory of credit rationing. Thirdly, thepaper empirically test the influence on debt financing of enterprises given by accounting conservatism,which sampled the two cities of Shenzhen and Shanghai A shares of quoted company data in2004-2011.Combining with the special institutional environment, this paper examined the influence of theaccounting conservatism to the enterprise in obtain debt financing with different maturity structure. Indifferent periods of monetary policy, the enterprise debt financing level changes. So it further discussedthe debt financing effect of accounting conservatism, which set the influence in the monetary policy andfinancing needs of enterprises.The empirical results show that:(1) the increasing of the accounting conservatism can make theenterprise to obtain more bank borrowings and long-term bank loans; the effect is more significant innon-state-owned enterprises.(2) when the monetary policy is tight, bank borrowings got by enterpriseswill decrease; bank borrowings of non-state-owned enterprises is significantly lower than state-ownedcompanies.(3) when the monetary policy is tight, enterprises of higher accounting conservatism can acquire more bank borrowings and long-term bank loans, compared with the lower enterprise accountingconservatism.(4) when the monetary policy is tight, the increasing of the accounting conservatism ofnon-state-owned enterprises can make it acquire more bank borrowings and long-term bank loans,compared by the state-owned companies.The conclusions of this article are helpful to strengthen the understanding on the AccountingConservatism in quoted companies; it provides an effective way to solve problems about enterprisefinancing. Meanwhile financing companies can palliate the loss of Changes in monetary policy on debtfinancing by improving Accounting Conservatism. Moreover, under the macro environment of monetarypolicy, it is useful to better understand how the Monetary policy affects economic developmentmechanism that study the relationship between accounting conservatism and debt financing, and it helpsus understand the role played by debt contract in enterprises in the period of the different monetarypolicy.