Topic：Lending Relationships and the Demand for AccountingConservatism: Theory and Evidence
Presenter：Jing Li, associate professor, The University of Hong Kong
Time：March 31, 2017（Friday） 10：00 - 11:30
Venue：Room 205, Jiageng Bld 2
Abstract：We examine the role of lending relationships as a determinant of accounting conservatism for borrowers with accounting-based covenants. We incorporate the lender's information acquisition in the incomplete contract framework. The lender with more intense relationship is more likely to obtain private information about the project's true states and make efficient liquidation decisions after covenant violations. We show that the lending relationship intensity and accounting conservatism have complementary effects on the lender's information acquisition incentive, as well as on the borrower's total payoff. We derive and test two predictions from the model: 1) accounting conservatism increases with the intensity of lending relationship, and 2) the relationship between the ex-ante loan spread and accounting conservatism is more negative as the intensity of lending relationship increases. Our empirical evidence is consistent with both of these predictions.