Li, Xi 
ORCID: 0000-0002-9870-9661
(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
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 |
| Date Deposited: | 05 Dec 2017 14:48 |
| Last Modified: | 14 Nov 2024 17:03 |
| URI: | http://eprints.lse.ac.uk/id/eprint/85967 |
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