The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts Over Dividend Policy and in Reducing Debt Costs

Posted: 5 Aug 2002

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

Richard M. Morton

Florida State University - Department of Accounting

Mary Harris Stanford

Texas Christian University - Department of Accounting

Abstract

Using both a market-based and an accrual-based measure of conservatism, we find that firms facing more severe conflicts over dividend policy tend to use more conservative accounting. Furthermore, we document that accounting conservatism is associated with a lower cost of debt after controlling for other determinants of firms' debt costs. Our collective evidence is consistent with the notion that accounting conservatism plays an important role in mitigating bondholder-shareholder conflicts over dividend policy, and in reducing firms' debt costs.

Keywords: accounting conservatism, dividend policy conflicts, cost of debt

JEL Classification: M41, G32, G35

Suggested Citation

Ahmed, Anwer S. and Billings, Bruce K. and Morton, Richard M. and Stanford, Mary, The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts Over Dividend Policy and in Reducing Debt Costs. The Accounting Review, October 2002. Available at SSRN: https://ssrn.com/abstract=315505

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)

Richard M. Morton

Florida State University - Department of Accounting ( email )

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

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)

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