We examine the relation between the use of collateral and accounting conservatism for a sample of Chinese firms during 2001 to 2006. China provides a powerful setting for testing the direct effect of accounting conservatism on collateral requirements because of the government's tight control over interest rates during our sample period, which severely limits lenders' use of loan pricing (through interest rates) to differentiate across borrowers with different risks. We document that accounting conservatism and the use of collateral are negatively related, after controlling for firm performance and risk. The negative relation is consistent with collateral and accounting conservatism serving as alternatives for reducing the agency cost of debt. Further analysis reveals that the negative relation is attenuated by borrower and lender state ownership. These results are consistent with our hypotheses that the marginal benefit of accounting conservatism, as reflected in reduced collateral requirements, is less pronounced for state-owned enterprises and for firms that obtain more loans from state-owned banks.
| Speaker: | Dr Gerald LOBO Arthur Andersen Chair Professor in Accounting, University of Houston (SMU, Cheng Tsang Man Chair Visiting Professor) |
| When: |
3.30 pm - 5.00 pm |
| Venue: | School of Accountancy [Map] Level 4, Meeting Room 4.1 |
| Contact: | Office of the Dean Email: SOAR@smu.edu.sg |
