Does accounting quality reduce external financial constraints?

Abstract

This study investigates how accounting quality relates to financial constraints at the firm level. In this study, our first hypothesis is that higher accounting quality reduces financial constraints at the firm level. Our second hypothesis is that higher accounting quality reduces financial constraints more after IFRS adoption in 2011 than before IFRS adoption in Thailand. Our third hypothesis is that higher accounting quality reduces financial constraints more in state-owned enterprises than in privately-owned enterprises. Lastly, auditing quality could be another proxy of accounting quality. Therefore, our fourth hypothesis is that higher auditing quality reduces financial constraints at the firm level. In this study. Our results in the first hypothesis are consistent for KZ index and WW index model. However, the results in WW index model show a strong relation between accounting quality and financial constraints when compared to KZ index model. Therefore, we choose WW index to represent our results for hypothesis 2, 3 and 4. For the second hypothesis, there is no statical evidence to support this hypothesis. For the third hypothesis, our results are consistent with our expectation. For the fourth hypothesis, our test results are consistent with our expectation.