235 /274
臺大管理論叢
第
27
卷第
4
期
235
results show that state owned enterprises (SOEs) adopt less conservative accounting than
non-state owned enterprises (NSOEs) because lenders are less concerned about SOEs’
default risk due to the government’s implicit guarantee. In addition, borrower firms are more
conservative when borrowing more from state-owned banks (SBs) because SBs have less
demand for conservatism. Gormley et al. (2012) examine how changes in the banking sector
(lenders) impact timely recognition of loss behavior among borrowing firms. By utilizing the
entry of foreign banks into India during the 1990s as an exogenous shock, they find that
borrowers become more conservative in response to the changes of the banking environment,
especially those firms that rely more on external financing. Haw et al. (2014) use Korean
private firms to examine the effect of debt type (public debt vs. bank debt) on conservatism.
Firms borrowing from banks and taking on public debt are more conservative than firms
relying only on bank debt. Lin et al. (2009) document that more conservative companies
have a lower cost of debt capital. Moreover, conservatism is positively associated with credit
rating. Li (2015) further finds this relationship more obvious in countries relying more on
debt covenants. Some studies also find that conservatism affects debt maturity. If a borrower
is conservative, the lender will be more likely to offer a longer-term loan because
conservatism helps mitigate information asymmetry (Khurana and Wang 2015).
In summary, the prior literature documents that debt type as well as lender type have an
impact on a borrower’s conservatism, which is consistent with Watts (2003a).
3.3 Conservatism and Corporate Governance
There are two widely adopted perspectives when examining the relationship between
corporate governance and conservatism. One is the substitutive perspective and the other is
the complementary perspective. The substitutive perspective treats conservatism as a tool to
alleviate the information asymmetry problem. Therefore, it assumes that demand for
conservatism will be higher for companies with weaker corporate governance. On the other
hand, the complementary perspective argues that conservative accounting complements other
governance mechanisms. Under this view, companies with better corporate governance are
more likely to implement accounting conservatism.
In Asian countries, the primary agency problem is the conflict between minority
shareholders and the controlling shareholders. Prior studies utilize this setting to examine
corporate governance issues and conservatism. Chan and Hsu (2013) show that conservatism
can reduce the agency cost of debt in corporate pyramids. They find that when firms with