Association Between Borrower and Lender State Ownership and Accounting Conservatism

Journal of Accounting Research, Vol. 48, No. 5, pp. 973-1014, December 2010

61 Pages Posted: 19 Aug 2010 Last revised: 17 Oct 2010

See all articles by Hanwen Chen

Hanwen Chen

University of International Business and Economics

Jeff Zeyun Chen

Texas Christian University

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Yanyan Wang

Xiamen University

Date Written: July 1, 2010

Abstract

We examine the association between borrower (firm) and lender (bank) state ownership and accounting conservatism for a sample of Chinese firms. We hypothesize that state-owned enterprises (SOEs) adopt less conservative accounting than non-state-owned enterprises (NSOEs) because lenders are less concerned with downside risk for SOEs than for NSOEs. We also hypothesize a negative relation between conservatism and the fraction of total loans a firm borrows from state-owned banks (SBs) because SBs have weaker demand for assurance of sufficient net assets to cover loan repayments than non-state-owned banks (NSBs). We find support for both hypotheses. Further analyses reveal that (1) firms that borrow from commercial SBs exhibit more conservative accounting than firms that borrow from policy SBs, and (2) firms adopt more conservative accounting as they get more loans from banks with foreign ownership or exclusively foreign banks. However, the results of these additional analyses are to some extent sensitive to alternative measures of accounting conservatism.

Keywords: Accounting conservatism, Debt contracting, State-owned enterprises, State-owned banks

JEL Classification: G21, M41

Suggested Citation

Chen, Hanwen and Chen, Jeff Zeyun and Lobo, Gerald J. and Wang, Yanyan, Association Between Borrower and Lender State Ownership and Accounting Conservatism (July 1, 2010). Journal of Accounting Research, Vol. 48, No. 5, pp. 973-1014, December 2010, Available at SSRN: https://ssrn.com/abstract=1661188

Hanwen Chen

University of International Business and Economics ( email )

10# Huixin East Street,Chaoyang District
Beijing, Beijing 100029
China

Jeff Zeyun Chen (Contact Author)

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Yanyan Wang

Xiamen University ( email )

Xiamen, Fujian 361005
China

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