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The Differential Impact Of Private And Public Debt On Accounting Conservatism

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  • Fengyun Wu

Abstract

The private and public debt markets differ in monitoring functions and covenant features. This paper empirically examines whether these differences impact accounting conservatism. Using a sample drawn from Loan Pricing Corporation’s Dealscan, I find that firms report more conservatively in the years following the issuance of private debt than the years before. I also find that firms report more conservatively following initial public debt offerings (bond IPOs). However, there is no change in the degree of conservatism around seasoned bond offerings. I interpret the results as reflecting differences in monitoring functions of the private and public debt markets. The direct monitoring by private debt holders and the external monitoring including regulatory scrutiny in the context of bond IPOs are effective in enforcing accounting conservatism. The limited monitoring in the case of seasoned bonds fails to do so.

Suggested Citation

  • Fengyun Wu, 2021. "The Differential Impact Of Private And Public Debt On Accounting Conservatism," Accounting & Taxation, The Institute for Business and Finance Research, vol. 13(1), pages 109-119.
    • Handle: RePEc:ibf:acttax:v:13:y:2021:i:1:p:109-119
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    More about this item

    Keywords

    Accounting Conservatism; Monitoring Function of Debt; Private Debt; Public Debt;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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