This paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process. The author argues that conservatism benefits lenders ex post through a timely signal of default risk, as more conservative borrowers are more likely to violate financial covenants following negative shocks. Ex ante, conservatism benefits borrowers through lower initial interest rates, as lenders offer lower interest rates to more conservative borrowers. The study uses a sample of 339 firms that experienced at least one negative shock in 1999 or 2000 and employs multiple measures of conservatism to test these hypotheses. The results are robust across different measures of conservatism and control variables, providing strong evidence that conservatism plays an efficient role in debt contracting. The paper also discusses the implications for standard setters and the broader literature on accounting conservatism.This paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process. The author argues that conservatism benefits lenders ex post through a timely signal of default risk, as more conservative borrowers are more likely to violate financial covenants following negative shocks. Ex ante, conservatism benefits borrowers through lower initial interest rates, as lenders offer lower interest rates to more conservative borrowers. The study uses a sample of 339 firms that experienced at least one negative shock in 1999 or 2000 and employs multiple measures of conservatism to test these hypotheses. The results are robust across different measures of conservatism and control variables, providing strong evidence that conservatism plays an efficient role in debt contracting. The paper also discusses the implications for standard setters and the broader literature on accounting conservatism.