Abstract

This study examines the relationship between accounting conservatism and the firm#x2019;s cost of debt in an African firm#x2019;s settings. In further, the paper investigated the moderating effects of a firm#x2019;s ownership structure in this relationship. It uses firm-level data of 224 firms in 8 African countries from OSIRIS databases from 2007 to 2018. We employed a linear regression model to estimate the relationship and the moderating effects of ownership structure. We adopted a model of Givoly and Hayn (2000) the accrualbased measure of accounting conservatism to quantify the level of conservatism reporting of the firm, and we use 1-year ahead interests paid for the total interest-bearing debt to measure the cost of the firm#x2019;s debt capital. The findings indicated that the relation between accounting conservatism and cost of debt is negative as expected, and firms with high accounting conservatism in recognizing their losses than their gain enjoy a low cost of debt. The result also proves that firms with high institutional ownership shareholding percentages are more conservatism. Institutional ownership boots the relationship between accounting conservatism and the cost of debt. The results have a contribution to the positive accounting theory suggests that accounting conservatism enhances efficiency in the debt contracts process (Watts and Zimmerman 1986).