Accounting Conservatism and Cost of Capital: An International Analysis
Temple University - Fox School of Business and Management
December 6, 2010
This paper examines the contracting benefits of accounting conservatism on international capital markets. I find that firms domiciled in countries with more conservative financial reporting systems have lower cost of equity and debt capital. I further examine how the interaction between conservatism and country corporate governance structures influences the cost of capital. Consistent with the information role of conservatism, I find that the negative association between conservatism and the cost of capital is stronger for countries with poorer information environment. I also document a substitution effect between the strength of shareholder protection and conservative financial reporting and a complementary effect between the strength of creditor protection and conservatism.
Number of Pages in PDF File: 50
Keywords: Cost of debt, Cost of equity, Conservatism, Corporate Governance
JEL Classification: M41, M44, M47, G12, F00, G32, G38working papers series
Date posted: September 13, 2008 ; Last revised: December 14, 2010
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