Abstract
AbstractThis study examines the relationship between accounting conservatism and measures of financial status. We find that, in general, a higher level of accounting conservatism is associated with a lower level of financial constraints – thereby making external funds less costly. The results also show that for a firm with a higher bid‐ask spread or a higher likelihood of bankruptcy, this negative relationship between conservative financial reporting and financial constraints is intensified. In other words, a higher level of accounting conservatism is likely to make external funds less costly especially for those firms with a higher level of bid‐ask spread or a higher level of bankruptcy risk.
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