The Debt Cost Reduction Effect of Earnings Conservatism: Single Threshold Evidence from Financing Constraints

Jiatong Wei

doi:10.6981/FEM.202609_7(9).0012

Authors

Jiatong Wei College of Economics and Management, Hebei Agricultural University, Baoding, 071001, Hebei, China

DOI:

https://doi.org/10.6981/FEM.202609_7(9).0012

Keywords:

Earnings Conservatism; Cost of Debt; Financing Constraints.

Abstract

The focus of this paper is whether the impact of earnings conservatism on debt cost depends on the degree of corporate financing constraints. We use data to test this, and use the panel threshold model to sample China 's A-share listed companies from 2015 to 2024. The results show that earnings conservatism significantly reduces the cost of debt, and the relationship is moderated by a single financing constraint threshold (SA = -3.841). In enterprises with high financing constraints (SA ≤ -3.841), the role of earnings conservatism in reducing costs is significantly stronger, with a regression coefficient of-1.524; however, enterprises with low financing constraints did not observe a statistically significant impact. It can be seen that the economic benefits of earnings conservatism are not universal, mainly concentrated in companies with tight financing conditions. The evidence in this paper has certain operability: it can not only help enterprises with stronger constraints to improve their financing choices, but also help creditors to assess risks more accurately ; at the same time, the study complements the existing literature by emphasizing the non-linear channels through which accounting information affects corporate results.

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