Balance Sheet Conservatism and Debt Contracting

• 成果类型: Article
• 署名作者: Sunder, Jayanthi; Sunder, Shyam V.; Zhang, Jingjing
• 署名单位: University of Arizona; McGill University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12356
• 发表日期: 2018
• 页码: 494-524
• 关键词: ACCOUNTING CONSERVATISM; unconditional conservatism; asymmetric timeliness; earnings conservatism; information-content; Market reaction; stock-market; to-book; QUALITY; covenants

摘要

We study the role of borrowers' balance sheet conservatism (i.e., conservatism in asset values) in debt contract design. We find that borrowing costs are decreasing in the degree of balance sheet conservatism, and this effect is stronger for firms with lower credit quality. This is consistent with balance sheet conservatism reducing lenders' uncertainty about the liquidation value of assets, thus facilitating the ex ante screening of borrowers. We predict that better ex ante screening also reduces the need for ex post monitoring, and find that balance sheet conservatism is associated with less restrictive covenant terms. Further, we find that asymmetric timeliness in earnings is associated with lower borrowing costs only when balance sheet conservatism is not high. This result suggests that lenders appear to recognize the constraining effect of high balance sheet conservatism on future conservatism in earnings.