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Does Conditional Conservatism affect the Cost of Capital? Evidence from China

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  • Naveed Razzaq, Zhang Rui

    (Xinyu University, Jiangxi, China)

Abstract

Conditional conservatism is strict verification of losses than gains and in timely recognition of earnings by reflecting bad news more quickly than good news. This study inspects the relation of conditional conservatism and the cost of capital. This paper examines whether timely loss recognition in financial reporting lowers the cost of capital in China A-Share listed enterprises registered in Shenzhen and Shanghai stock exchanges. This research analyse the penal data over the period 2002 to 2013. We find that conservatism reduces the cost of capital by decreasing dividend payoff, and conservatism reduces the agency conflict by reducing dividend payoff. Paper enhances the extant literature in same vein research by indulging different variables, sample size and period.

Suggested Citation

  • Naveed Razzaq, Zhang Rui, 2018. "Does Conditional Conservatism affect the Cost of Capital? Evidence from China," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 3(1), pages 57-70, March.
    • Handle: RePEc:gei:jnlfer:v:3:y:2018:i:1:p:57-70
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