A Study of the Relationship between Accounting Conservatism and the Cost of Capital

• Main Authors: Shih-Chun Chiu, 邱仕羣
• Other Authors: Song-Horng Lin
• Format: Others
• Language: zh-TW
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/18833968649837973883

碩士 === 國立成功大學 === 會計學系碩博士班 === 96 === The cost of capital is formed with the cost debt and equity.To decrease the cost of capital, this is an important study for efficient operating to understand and satisfy the demand of lenders and capital market investors. Prior literatures indicate the practice of conservatism arise beneficial and cost effect. Lenders concern wheather the practice of policy improve debt contracting efficiency. In other words, the benefit of conservatism is the major consideration to influence the cost of debt. Investors concern wheather the practice of accounting conservatism lose earings quality and influence the accuracy of ability to predict future earnings. In the words, the cost of conservatism is the major consideration to influence the cost of equity. Recent academic literatures indentify two types of accounting conservatism: unconditional conservatism and conditional conservatism. Unconditional conservatism is accounting-based and is decided by accouting policy procedure. It belongs to news independent and ex ante conservatism. Conditional conservatism is market-based and earnings related. It belongs to news dependent and ex post conservatsim. The two dimensions of conservation with differences in nature cause the different responses to cost and benefit of conservatism. We examine wheather the two types of accouting conservatism have the different impact on the cost of debt (equity) when they have distinct the benefital (cost) aspect of conservatism. The short period (one year) have replaced by the long period (three years). Because of the cumulative effect of asymmetric timeliness in earnings over a period of time, conditional conservatism has larger ability to influence end-of-period unconditional conservatism. The impact of accouting conservatism on the cost of capital not only focuses on the nature of conservatism but also consider the meaning about conditional conservatism with ability to change unconditional conservatism. We argue that the impact of two dimensions of conservatism on the cost of capital over long period again. In addition, on the cost aspect of conservatism prior scholars confirm that accounting conservatism reduce the earnings persistence and earning quality and refer conservatism may be associated with lower quality earnings due to managers’ opportunistic behavior. So there is a extended research for this motive to argue wheather conservatism increases earnings management. Empirical results indicate that (1) Over the short period, condtional conservatism reduces the cost of debt and unconditional conservatism increases the cost of debt. Over the long period, conditional and unconditional conservatism both increase the cost of debt. (2) Over the short period, conditional conservatism increases the cost of equity and unconditional conservatism reduces the cost of equity. Over the long term, conditional and unconditional conservatism both reduce the cost of equity. (3) Without respect to over the short period or the long period, conditional and unconditional conservatism raise earnings management hehaviors.