Accounting Conservatism and Firm Growth Financed by External Debt: The Role of Debt Maturity
Journal of Accounting, Auditing and Finance, Volume 32, Issue 2, pp. 182-208, 2017
45 Pages Posted: 1 Apr 2015 Last revised: 3 Mar 2021
Date Written: March 31, 2015
Previous research shows that accounting conservatism facilitates debt contracting. Extending this line of literature, we examine whether the role of accounting conservatism in accessing external debt to attain firm growth varies with its maturity. We find evidence of a positive relationship between conservatism and debt maturity. We also observe a positive relationship between conservative accounting and future growth funded by all classes of debt, but this relation is due to long-term rather than short-term debt, which is less prone to agency risk. Further, the associations between conservatism and debt maturity and conservatism and growth financed by long-term debt are mostly observed for firms with fewer anti-takeover provisions in place. These findings suggest that the demand for accounting conservatism is not uniform across different debt maturity horizons.
Keywords: Conservatism, Debt Maturity, Firm Growth, External Financing
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