An Examination of the Effect of the Debt Maturity Structure on Accounting Conservatism

Conservatism is defined as requiring a higher degree of verification practiced by accountants to identify good news compared to bad news. The results of previous studies show that the decisions related to debt maturity are one of determining factors in accounting conservatism. Short maturity debt allows better control for managers because shorter maturity causes the incentives for renegotiations in order to extend the debt. Creditors sing a closer and more accurate contract with borrowers and can decide on extending or changing the terms after the clarification of company's performance during the first period. This article aims to study the effect of debt maturity structure on accounting conservatism. The statistical population consisted of all companies listed on Tehran Stock Exchange (TSE) from 2005 to 2014. Basu (1997) model was employed in this study to measure the accounting conservatism. In order to measure debt maturity, short-term to total debt ratio is used. Short-term debt is the one settled during one year. The results show that shortterm debt maturity has a significant, negative impact on accounting conservatism. Firm size and discretionary accruals have a significant relationship with accounting conservatism. Cash flows are effective in accounting conservatism. The effectiveness of cash flows in accounting conservatism indicates the conservatism sensitivity to cash flows.