Cookies?
Library Header Image
LSE Research Online LSE Library Services

Accounting conservatism and the cost of capital: an international analysis

Li, Xi (2015) Accounting conservatism and the cost of capital: an international analysis. Journal of Business Finance and Accounting, 42 (5-6). pp. 555-582. ISSN 0306-686X

Full text not available from this repository.
Identification Number: 10.1111/jbfa.12121

Abstract

This paper examines the role of conditional accounting conservatism in mitigating the cost of equity and debt capital in an international setting. I find that firms domiciled in countries with more conservative financial reporting systems have lower cost of equity and debt capital. I further explore the cross-sectional variation of the above relations. I find that the negative association between conditional conservatism and the cost of equity and debt capital is more pronounced in countries with stronger legal enforcement, suggesting a complementary role between conservatism and legal institutions in capital markets. I also find that conservatism only reduces the cost of debt in countries where accounting-based covenants are widely used, consistent with the argument that conditional conservatism improves the efficiency of debt contracts via accelerating covenant violations.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2015 The Author
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Sets: Departments > Accounting
Date Deposited: 05 Dec 2017 14:48
Last Modified: 20 Jul 2019 02:06
URI: http://eprints.lse.ac.uk/id/eprint/85967

Actions (login required)

View Item View Item