Debt Covenants,Bond Ratings,and Accounting Conservatism

In September 2007,China's first corporate bond was publicly issued,and China officially entered the corporate bond market.The bond market reform continued to deepen and the bond market gradually expanded.The domestic bond market was deeply troubled by credit default events.In 2014,"Chao Ri Bond" in 2014,111 credit bonds became the first bond with substantial default.As of the end of 2017,111 credit bonds in China had defaulted,amounting to 64.785 billion yuan,and the issue of creditor rights protection became increasingly prominent.With the economic restructuring and the deleveraging process of enterprises,the bond market breaks the rigid redemption state in line with the market law and the inevitable development trend.For this,creditors should establish a sense of risk taking.Corporate debt covenants and bond ratings can alleviate information asymmetry to a certain extent,and urge bond issuers to handle accounting information steadily and effectively protect the rights and interests of creditors.The construction of the domestic bond market has a long way to go,and it is expected that exploration and innovation along this new direction will promote its sustained,steady development.Information asymmetry and principal-agent problems are common in the bond market.Creditors are in a weak position in information.They sign more corporate debt covenants with the issuer in order to obtain protection of interests,constrain the issuer's opportunistic behavior,and reduce conflicts of interest.As the "gatekeeper"of the bond market,the bond rating conveys the default risk signal of the issuing company to the market and becomes an important mechanism to alleviate information asymmetry.The motivation for management to conceal losses is limited by corporate debt covenants.Careful handling of accounting information can avoid damage to reputation and reduce litigation risks.At present,domestic research on corporate bonds mostly focuses on internal systems such as bond issuance interest rates,issue prices,and credit spreads.Few documents examine the relationship between corporate debt covenants and accounting conservatism from the perspective of creditor interests protection,and combine bond rating mechanisms.The literature to study the relationship between the three has not yet been seen.This paper manually collects the 2007-2016 Shanghai and Shenzhen stock company terms and conditions,and studies whether it can promote the company's stable handling of accounting information,and incorporates the bond rating factors,exploratory analysis of its impact on corporate debt covenants and accounting conservatism.It is expected to provide theoretical reference and experience for the stable,healthy and sustainable development of the bond market.The main content of this paper consists of the following parts:Chapter ? is introduction.This section mainly introduces the research background,research significance,research content and methods of this paper,and points out the innovations and defects of this paper.Chapter ? is literature review.The research status of corporate debt covenants,bond ratings and accounting conservatism at home and abroad is reviewed.The literature review section summarizes and points out the research viewpoints of this paper.Chapter ? is the definition of the concept,the theoretical basis and the hypothesis.Firstly,the definitions of corporate debt covenants,bond ratings and accounting conservatism are defined.Secondly,the research hypothesis of this paper is proposed by analyzing information asymmetry theory,principal-agent theory and debt contract theory.Chapter ? is research design.This paper takes the corporate bonds publicly issued by listed companies in Shanghai and Shenzhen Stock Exchange in 2007-2016 as a sample,defines relevant variables,and establishes research models.Chapter ? is the empirical results and analysis.Firstly,the relevant variables involved in the empirical research are descriptively statistically analyzed and their correlations are analyzed.Secondly,the empirical analysis of the impact of the number of corporate debt covenants and the number of clauses on accounting conservatism is included,and the bond rating is included as a regulatory variable to study the above relationship.The impact;finally,the use of different models and methods to verify the robustness of the empirical conclusions.Chapter ? is the research conclusions and policy recommendations.Based on the empirical results,the conclusions of this study are summarized and related to the actual policy recommendations.The conclusions of this paper are as follows:(1)the signing of corporate debt covenants makes the accounting conservatism of issuing bond companies significantly higher than that of unsigned terms;(2)the number of different types of corporate debt covenants has a significant positive effect on accounting conservatism;(3)relatively high credit rating bonds,corporate debt covenants in low credit rating bonds have a greater impact on accounting conservatism.According to the above research conclusions,this paper proposes the following suggestions to provide experience for promoting the development of the bond market.(1)Effective implementation of special provisions for protective corporate debt covenants;(2)Improve the quality of accounting information of bond issuing companies;(3)Strengthen the supervision of credit rating agencies and improve the quality of credit ratings.This paper adopts the Propensity Score Matching and simultaneous equations group to conduct empirical research.In the research content,the bond rating was explored as a moderator,and the internal relationship between corporate debt covenants,bond rating and accounting conservatism was found.The research results in this paper improve the bond market development system and enrich the research scope of corporate bonds,which is the research innovation of this paper.