Accounting Conservatism and Cost of Debt: An Empirical Test of Efficient Contracting

36 Pages Posted: 25 Apr 2000

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Bruce K. Billings

Florida State University - Department of Accounting

Mary Harris Stanford

Texas Christian University - Department of Accounting

Richard M. Morton

Florida State University - Department of Accounting

Date Written: March 2000

Abstract

This study provides evidence on the role of accounting conservatism in mitigating bondholder/shareholder conflicts over dividend policy. In particular, we document that firms that face more severe conflicts over dividend policy tend to use more conservative accounting. Furthermore, we also document that there is a tradeoff between conservatism and the cost of debt. Firms that choose more conservative accounting have a lower cost of debt after controlling for other determinants of the cost of debt. Taken together, the evidence is consistent with the notion that accounting conservatism plays an important role in efficient contracting.

Suggested Citation

Ahmed, Anwer S. and Billings, Bruce K. and Stanford, Mary and Morton, Richard M., Accounting Conservatism and Cost of Debt: An Empirical Test of Efficient Contracting (March 2000). Available at SSRN: https://ssrn.com/abstract=275551 or http://dx.doi.org/10.2139/ssrn.275551

Anwer S. Ahmed (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Bruce K. Billings

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-644-7889 (Phone)
850-644-8234 (Fax)

Mary Stanford

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States
817-257-7483 (Phone)

Richard M. Morton

Florida State University - Department of Accounting ( email )

Room No. 421
Tallahassee, FL 32306-8234
United States
850-644-7877 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
2,269
Abstract Views
6,697
rank
5,949
PlumX Metrics