Debt Financing and Accounting Conservatism in Private Firms

• 成果类型: Article
• 署名作者: Haw, In-Mu; Lee, Jay Junghun; Lee, Woo-Jong
• 署名单位: Texas Christian University; University of Massachusetts System; University of Massachusetts Boston; Hong Kong Polytechnic University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12064
• 发表日期: 2014
• 页码: 1220-1259
• 关键词: unconditional conservatism; asymmetric timeliness; bank loans; information asymmetry; reporting incentives; earnings management; Ownership structure; Cash flows; QUALITY; accruals

摘要

This study investigates the role of public debt financing in shaping accounting conservatism in privately held companies. We focus on the change in conservatism of private firms following initial issuance of public debt and examine the effects of agency conflicts between bondholders and shareholders on the change in conservatism. Regression analyses on a large sample of public bond issues by Korean private firms reveal the following: First, private firms with public debt exhibit a higher degree of conservatism than those with exclusively private debt. The incremental effect of public debt on the level of conservatism is virtually equivalent in magnitude to that of public equity. Second, and more importantly, private firms that issue public debt for the first time show a significant increase in conservatism, whereas corresponding public firms do not. Third, private firms with high agency costs of public debt (characterized by high-information asymmetry and high credit risk) undergo a greater increase in conservatism following their initial bond issues than those with low agency costs. Further analysis shows that private firms sustain increased levels of conservatism even beyond the time period of average maturity of initial bonds and that bond investors reward this long-term commitment to conservative accounting by gradually reducing interest rates for seasoned bond issuers. The findings of this study shed light on how information demand arising from public debt issuance, especially by private firms with high ex ante agency costs, engenders conservative financial reporting in emerging markets.