This paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt
contracting process. I expect conservatism to benefit lenders ex post through the timely signaling of default risk, as
manifested by accelerated covenant violations, and to benefit borrowers ex ante through lower initial interest rates.
Consistent with these predictions, I find that more conservative borrowers are more likely to violate debt covenants
following a negative price shock, and that lenders offer lower interest rates to more conservative borrowers.