Abstract
AbstractThis paper investigates whether the usefulness of accounting profitability in debt contracts changes after the adoption of the new Chinese accounting standards (“NCAS”) in 2007. We find that the sensitivity of new debts to accounting profitability declines after the adoption and that firms are heavily influenced by the adoption of the new accounting standards and experience a more significant decrease in sensitivity. Moreover, such a decrease in sensitivity is more pronounced for non-state-owned companies than for state-owned companies. Overall, our results indicate that the usefulness of accounting profitability decreases after the adoption of the new accounting standards.
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