An empirical investigation of accounting conservatisms role in corporate financing availability and systemic risk transmission across economic cycles: evidence from banking and manufacturing firms

This study explores the countercyclical role of accounting conservatism in the business cycle, focusing on how it affects firms acquisition of external financing and the transmission of systemic risks. Using data from 312 listed banks and 1,047 manufacturing firms in China from 2008 to 2022, we measure robustness by dividing the absolute value of negative accrual items by total assets, we measure financing accessibility by dividing new debt issuance by assets, and we measure systemic risk by the 5% CoVaR percentile at the firm level. After using the fixed-effect model regression including the interaction term of the business cycle state and supplemented by 2SLS and system GMM methods to handle endogeneity, it was found that during the expansion period, increased robustness significantly reduced new debt issuance by banks ( = -0.042, p < 0.01), but had no significant impact on manufacturing firms. Conversely, during the recession period, robustness effectively eliminated the spillover effects of systemic risks in banks ( = -0.068, p < 0.05) and manufacturing industries ( = -0.054, p < 0.05). This indicates that conservative accounting plays the role of a procyclical credit limiter during the expansion period and a stabilizing buffer during the depression period. The research findings have implications for countercyclical disclosure policy aimed at balancing financial stability and credit availability.