Business, Management and Accounting
4 years ago

Accounting conservatism reduces debt costs and resolves bondholder-shareholder conflicts

SSRN Electronic Journal
The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts over Dividend Policy and in Reducing Debt Costs
Anwer S. Ahmed, Bruce K. Billings, Richard M. Morton, Mary Harris Stanford

Paper Summary

Accounting conservatism helps companies deal with conflicts between bondholders and shareholders over dividend policies. Firms facing more severe conflicts tend to use more conservative accounting methods. This helps reduce the cost of debt for these companies. In simple terms, being more conservative in accounting can help companies manage conflicts and lower their debt costs.

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