This study investigates how firms' debt cost affects their conservatism in the first stage, and then leads their future strategies in the second stage. Moreover, it shows that firms would likely ignore their conservatism when choosing a strategy, especially diversification. Then, it presents two interrelated novelties. First, firms operate with a low cost of debt, constructing their high conservatism. As a result, they would likely choose a cost-reduction strategy. Conversely, firms with low conservatism usually choose diversification strategies because they are at the lowest risk. Second, this study highlights that the firms' diversification strategies are a conundrum while considering the cost of debt and conservatism when applied by firms operating the business in developing countries. Operating in emerging economies, firms could choose a higher debt cost and simultaneously ignore conservatism, maintaining their creditors as funding. Moreover, this research examines Asian countries' data using ordinary least-square (OLS) and two-stage last-square (2-SLS). In addition, 2-SLS outperforms in the staged-associative examinations. Thus, this research reveals that the cost of debt, conservatism and chosen strategies relate to simple staging. As a result, they acquire the highest cost of debt, with the high-risk level affecting their weighted cost of capital. Finally, this research infers that firms' costs of debt and conservatism are not mutually exclusive and sequentially affect their future strategic choices. It, therefore, suggests that when firms choose diversification strategies, they might probably take a high cost of debt, accompanied by a highly conservative level.
