scholarly journals Governance structure and cost of debt

2020 ◽  
Vol 4 (1) ◽  
pp. 41-53
Author(s):  
Abdelkader Derbali ◽  
Lamia Jamel ◽  
Mohamed Bechir Chenguel ◽  
Ali Lamouchi ◽  
Ahmed K Elnagar ◽  
...  
Keyword(s):  
Financial Reporting ◽  
Governance Structure ◽  
Cost Of Debt ◽  
Managerial Entrenchment ◽  
Ceo Tenure ◽  
Financial Expertise ◽  
Irrelevant Attributes ◽  
The Interest Rate ◽  
The Cost ◽  
Audit Independence

The purpose of this paper is to examine if creditors take account of the firm’s governance attributes to decide the cost of debt. Using a sample of 486 US firms over the period 1998-2017, we synthesized governance in six factorial axes. We have demonstrated that the quality audit (independence, frequency of meetings, auditor’s reputation, there is a charter) and financial expertise (percentage of financial experts and ownership of institutional investors) are informative tools creditors that provide information on the quality and reliability of financial reporting. They affect negatively and significantly the cost of debt. Moreover, creditors appreciate the presence of independent directors on the board and reduce the cost of debt required. Furthermore, the independence of the nomination and compensation committees prove irrelevant attributes of governance perspective because creditors do not reduce their risk of the agency. However, the attributes of the board (the size, the number of meetings, the existence of specialized committees, and meetings) are misunderstood by creditors that will increase the interest rate. In addition, the cost of debt increases with the concentration of managerial ownership and majority shareholders. Similarly, attributes reflecting the managerial entrenchment (duality of CEO tenure) are positively correlated to the cost of debt.

XBRL adoption and cost of debt

2015 ◽  
Vol 23 (2) ◽  
pp. 199-216 ◽  
Author(s):  
Syou-Ching Lai ◽  
Yuh-Shin Lin ◽  
Yi-Hung Lin ◽  
Hua-Wei Huang
Keyword(s):  
Financial Reporting ◽  
Securities And Exchange Commission ◽  
Cost Of Debt ◽  
Content Type ◽  
Public Firms ◽  
Top Managers ◽  
Weak Evidence ◽  
The Usa ◽  
Mandatory Adoption ◽  
The Cost

Purpose – This paper aims to examine the relation between the cost of debt and the adoption of eXtensible Business Reporting Language (XBRL). Design/methodology/approach – The financial data are obtained from the Compustat database. Regression analysis is used to examine the research hypotheses. Findings – The authors find that both voluntary and mandatory adoption of XBRL lead to a lower cost of debt for firms, with weak evidence that this reduction is greater for the former than the latter. Research limitations/implications – The findings support the policy of the USA Securities and Exchange Commission (SEC), and thus this paper recommends that adoption of XBRL should be mandatory for all public firms. Practical implications – The findings encourage top managers to develop their firms’ XBRL systems. Originality/value – The results support the SEC’s policy of mandatory XBRL adoption, as it can lead to greater financial reporting transparency and mitigate information asymmetry between management and bondholders.

The effects of industry expertise on cost of debt: an individual auditor-level analysis

2017 ◽  
Vol 25 (3) ◽  
pp. 322-334 ◽  
Author(s):  
Ying-Chieh Wang ◽  
Hua Wei Huang ◽  
Jeng-Ren Chiou ◽  
Yu Chieh Huang
Keyword(s):  
Policy Implications ◽  
Cost Of Debt ◽  
Firm Level ◽  
Industry Specialization ◽  
Content Type ◽  
Asian Context ◽  
The Interest Rate ◽  
The Individual ◽  
The Cost ◽  
Industry Expertise

Purpose The purpose of this paper is to examine the association between the cost of debt (COD) and auditor industry expertise using Taiwanese data. Since previous studies (Li et al., 2010) have only examined the relation between industry specialization and COD at the audit firm level in western countries, the authors further examine the association between industry specialization and COD at the individual auditor level in an Asian context. Design/methodology/approach The authors use the interest rate on the firm’s debt as a proxy variable for the COD (Francis, Khurana and Pereira, 2005). The authors adopt three different methods to measure industry specialization, which consist of the auditors’ market share in terms of client sales and number of clients, and client assets. Findings The results indicate that the clients of industry specialists at individual auditor levels have a lower COD. Originality/value First, the authors extend the research of Li et al. (2010) and find that the clients of individual auditor industry specialists also have a lower COD. Second, the authors also believe the evidence on the effects of industry expertise at the individual auditor level may have policy implications for regulators and public investors. Finally, in contrast to works carried out in the US market, the authors provide empirical evidence for the relation between industry specialization and COD in an Asian market.

scholarly journals The Effect Of IFRS Non-Audit Consulting Services On Cost Of Debt: Evidence From Korea

2015 ◽  
Vol 31 (5) ◽  
pp. 1889
Author(s):  
Seung Uk Choi ◽  
Woo Jae Lee
Keyword(s):  
Interest Rate ◽  
Financial Reporting ◽  
Credit Rating ◽  
Financial Statements ◽  
Cost Of Debt ◽  
Reporting Standards ◽  
Listed Firms ◽  
Financial Reporting Standards ◽  
Consulting Services ◽  
The Cost

Korean listed firms have been required to disclose their financial statements based on the International Financial Reporting Standards (IFRS) since 2011. Using pre- and post-IFRS reporting periods, we investigate the relation between IFRS non-audit consulting services provided by incumbent auditor and the cost of debt of its client for firms in the Korean Stock Market. We find evidence that IFRS non-audit consulting services are related to the decrease in cost of debt only during the post-IFRS period. In particular, receiving non-audit consulting services is positively associated with a clients bond credit rating and negatively associated with interest rate. The result generally holds when we use alternative proxies of IFRS non-audit consulting services. Finally, our results are robust to potential endogeneity issues in selecting non-audit services.

scholarly journals THE EFFECT OF VOLUNTARY IFRS ADOPTION BY UNLISTED FI RMS ON EARNINGS QUALITY AND THE COST OF DEBT: EMPIRICAL EVIDENCE FROM KOREA

2015 ◽  
Vol 16 (5) ◽  
pp. 931-948 ◽  
Author(s):  
Young Hwan Lee ◽  
Sun A. Kang ◽  
Sang Min Cho
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Sample Selection ◽  
Discretionary Accruals ◽  
Cost Of Debt ◽  
Cross Sectional ◽  
Listed Firms ◽  
Ifrs Adoption ◽  
The Cost ◽  
Unlisted Firms

The present study empirically examines how voluntary International Financial Reporting Standards (IFRS) adoption influences the earnings quality and the cost of debt of unlisted firms in Korea. Since 2011, when the adoption of IFRS by listed firms became mandatory, more unlisted firms have adopted IFRS voluntarily, improving the transparency and reliability of their accounting information. Using the sample of unlisted firms with 3year study period of preand post-IFRS adoption, we examine whether IFRS voluntary adopters show both lower discretionary accruals and the cost of debt than those of non adopters, and whether both discretionary accruals and the cost of debt of voluntary adopters decrease after IFRS adoption. We employ the Heckman's two stage approach in order to avoid sample selection bias and cross sectional pooled OLS regression with or without clustering test. We complimentary report the results from firm-fixed effect panel model to generalise the results. The results show that firms which adopt IFRS have a higher earnings quality and a lower cost of debt that those which do not. These findings suggest that when unlisted firms issue bonds and borrow money, IFRS adoption contributes to decreasing the cost of debt.

scholarly journals Earnings quality and the cost of debt for SMEs under severe information asymmetry

2021 ◽  
Vol 10 (3) ◽  
pp. 128-139
Author(s):  
Pietro Fera ◽  
Gianmarco Salzillo
Keyword(s):  
Financial Reporting ◽  
Private Information ◽  
Global Financial Crisis ◽  
Earnings Quality ◽  
Cost Of Debt ◽  
Negative Consequences ◽  
Accounting Data ◽  
Abnormal Accruals ◽  
The Cost ◽  
The Impact

The banking system has undergone substantial changes that boosted the relevance of transaction-lending technologies and the role of financial reporting in the bank-firm relationship. Due to the growing emphasis on accounting data, this study investigates the impact of earnings quality on the cost of debt for a sample of SMEs during the global financial crisis. Relying on a sample of Italian non-financial SMEs, empirical findings show a positive relationship between discretionary accruals and the cost of loans, highlighting the negative consequences of low-quality earnings. Further analysis reveals the different impacts that negative and positive abnormal accruals can have on the cost of debt: low values of the former can convey private information and positively affect the response variable, which shows a positive and quadratic relationship with the latter. These findings confirm the increasing importance of hard information in credit markets and point out the significant impact of the quality of the borrowers’ earnings on the cost of debts. However, the distinctiveness of the study from the previous literature relies on evidence that, even during a credit crunch period, financial institutions weigh up the expected return from lending transactions, relying on both the sign and the magnitude of discretionary abnormal accruals as a vehicle to get firms’ private information.

Financial reporting quality and the cost of debt of SMEs

2015 ◽  
Vol 45 (1) ◽  
pp. 149-164 ◽  
Author(s):  
Heidi Vander Bauwhede ◽  
Michiel De Meyere ◽  
Philippe Van Cauwenberge
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Debt ◽  
The Cost

Voluntary IFRS Adoption by Unlisted European Firms: Impact on Earnings Quality and Cost of Debt

2020 ◽  
Vol 55 (03) ◽  
pp. 2050013
Author(s):  
Mara Cameran ◽  
Domenico Campa
Keyword(s):  
Financial Reporting ◽  
Positive Impact ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Debt ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Cost ◽  
The Impact ◽  
Unlisted Firms

This paper investigates the impact of the voluntary adoption of International Financial Reporting Standards (IFRS) by unlisted firms on both their financial reporting quality and cost of debt. Using a large international sample of unlisted EU companies for which the choice of IFRS is voluntary, we find that IFRS adoption has a positive impact on financial reporting quality and results in a decrease in the cost of debt. In addition, unlisted firms adopting IFRS are more likely to be acquired or go public in the years subsequent to the adoption, relative to other unlisted firms. We document a tangible benefit of voluntary IFRS adoption by unlisted firms.

scholarly journals Over-Investment And The Cost Of Debt

2014 ◽  
Vol 30 (6) ◽  
pp. 1739 ◽  
Author(s):  
Jungeun Cho ◽  
Hyunjung Choi
Keyword(s):  
Financial Reporting ◽  
Positive Association ◽  
Cost Of Debt ◽  
Negative Consequences ◽  
Effective Measure ◽  
Yield Spreads ◽  
Risk Premiums ◽  
Bond Yield ◽  
Financing Costs ◽  
The Cost

In this paper, we examine the association between over-investment and the cost of debt. Using bond yield spreads as a proxy for the cost of debt, we find that over-investment is positively associated with bond yield spreads. This suggests that when firms engage in over-investment, the quality of their financial reporting is lower and business risk is higher. Therefore, investors demand higher risk premiums because of their inability to evaluate firms financial position and future operating performance efficiently. We also find that the positive association between over-investment and bond yield spreads is weaker for firms in which managers and foreign shareholders own a high percentage of shares. This same association is stronger for firms in which the largest shareholders own a large proportion of the company. These results imply variation in the effect of over-investment on bond yield spreads according to the ownership structure. Our findings provide empirical evidence that over-investment brings about negative consequences for firms by increasing their external financing costs. This paper contributes to extant literature by using bond yield spreads as a proxy for the cost of debt rather than using credit ratings and interest expenses. Bond yield spreads can be regarded as a more effective measure for the cost of debt because this measure reflects more timely and direct information about decision-making processes of financial market participants when corporate bonds are issued.

scholarly journals Privately held or publicly owned? The role of debt financing

2021 ◽  
Vol 18 (2) ◽  
pp. 124-130
Author(s):  
Amjad Toukan
Keyword(s):  
Returns To Scale ◽  
High Growth ◽  
Cost Of Debt ◽  
Equity Financing ◽  
The Public ◽  
Ownership Structures ◽  
Public Firm ◽  
The Interest Rate ◽  
The Cost

This paper examines the decision to go public under the issuance of both debt and equity financing. The decision to go public, the debt ratio and the shape of the ownership structure depend on the combination of debt and ownership structures that maximizes the initial owners’ wealth. Our model is based on a contest in which owners/managers and shareholders exert costly efforts to increase their probability of winning part of the value of the public firm where the outcome of the contest and the listing decision are affected by the cost of debt. We differ from previous research in that we model the interaction between shareholders, debtholders, and managers as a contest. Our results are largely consistent with previous research in the field where we show that in industries displaying decreasing returns to scale (or slower growth industries) it is always preferred to raise funds through the issuance of debt rather than equity while in industries displaying increasing returns to scale (or high growth industries) a positive relationship obtains between the interest rate and the issuance of equity

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