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

See all articles by Tony Kang

Tony Kang

University of Nebraska - Lincoln

Gerald J. Lobo

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

Michael C. Wolfe

Oklahoma State University - Stillwater - Spears School of Business

Date Written: March 31, 2015

Abstract

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

Suggested Citation

Kang, Tony and Lobo, Gerald J. and Wolfe, Michael, Accounting Conservatism and Firm Growth Financed by External Debt: The Role of Debt Maturity (March 31, 2015). Journal of Accounting, Auditing and Finance, Volume 32, Issue 2, pp. 182-208, 2017, Available at SSRN: https://ssrn.com/abstract=2588005 or http://dx.doi.org/10.2139/ssrn.2588005

Tony Kang

University of Nebraska - Lincoln ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
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

Michael Wolfe (Contact Author)

Oklahoma State University - Stillwater - Spears School of Business ( email )

201 Business
Stillwater, OK 74078-0555
United States

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