This paper examines the ex post and ex ante benefits of accounting conservatism in the debt contracting process for lenders and borrowers. It argues that conservatism benefits lenders ex post by providing a timely signal of default risk through accelerated covenant violations by more conservative borrowers. Evidence shows that the likelihood of covenant violation following a negative shock increases with borrower conservatism. Additionally, conservatism benefits borrowers ex ante by lowering initial interest rates, as evidenced by both in-sample and out-of-sample data showing that lenders offer lower interest rates to more conservative borrowers. These results are robust to controlling for other earnings attributes. The study uses a sample of 339 firms that experienced at least one negative shock in 1999 or 2000. Four measures of conservatism are used to assess the likelihood of covenant violations. The results consistently show that more conservative borrowers are more likely to violate covenants following a negative shock and do so sooner. The paper also tests whether conservatism reduces the cost of debt using a broader sample of syndicated loans with financial covenants. The results show similar findings, indicating that conservatism reduces the cost of debt. The paper also examines additional earnings attributes that may affect the cost of capital, including quality, persistence, predictability, smoothness, timeliness, and relevance of earnings. While individual attributes lower the cost of equity, conservatism does not reduce the cost of equity when all seven attributes are considered. However, conservatism, persistence, and smoothness incrementally reduce the cost of debt. The paper contributes to the literature by providing evidence on whether and how conservatism benefits lenders and whether and how lenders share the benefits with borrowers. The results confirm the accounting theory that conservatism creates some benefits that are shared between lenders and borrowers. The study highlights the importance of accounting conservatism in reducing lenders' downside risk and improving the efficiency of debt contracting. The findings suggest that lenders value conservatism over value relevance by reducing interest rates for more conservative borrowers. The paper also discusses the implications of these findings for standard setters, emphasizing the trade-off between relevance (favoring fair value) and reliability (favoring conservatism).This paper examines the ex post and ex ante benefits of accounting conservatism in the debt contracting process for lenders and borrowers. It argues that conservatism benefits lenders ex post by providing a timely signal of default risk through accelerated covenant violations by more conservative borrowers. Evidence shows that the likelihood of covenant violation following a negative shock increases with borrower conservatism. Additionally, conservatism benefits borrowers ex ante by lowering initial interest rates, as evidenced by both in-sample and out-of-sample data showing that lenders offer lower interest rates to more conservative borrowers. These results are robust to controlling for other earnings attributes. The study uses a sample of 339 firms that experienced at least one negative shock in 1999 or 2000. Four measures of conservatism are used to assess the likelihood of covenant violations. The results consistently show that more conservative borrowers are more likely to violate covenants following a negative shock and do so sooner. The paper also tests whether conservatism reduces the cost of debt using a broader sample of syndicated loans with financial covenants. The results show similar findings, indicating that conservatism reduces the cost of debt. The paper also examines additional earnings attributes that may affect the cost of capital, including quality, persistence, predictability, smoothness, timeliness, and relevance of earnings. While individual attributes lower the cost of equity, conservatism does not reduce the cost of equity when all seven attributes are considered. However, conservatism, persistence, and smoothness incrementally reduce the cost of debt. The paper contributes to the literature by providing evidence on whether and how conservatism benefits lenders and whether and how lenders share the benefits with borrowers. The results confirm the accounting theory that conservatism creates some benefits that are shared between lenders and borrowers. The study highlights the importance of accounting conservatism in reducing lenders' downside risk and improving the efficiency of debt contracting. The findings suggest that lenders value conservatism over value relevance by reducing interest rates for more conservative borrowers. The paper also discusses the implications of these findings for standard setters, emphasizing the trade-off between relevance (favoring fair value) and reliability (favoring conservatism).