Analyst Following, Internal Control Quality, and Debt Financing Costs: Empirical Evidence from China

Abstract

Data from A-share listed companies in Shanghai and Shenzhen stock markets, 2013–2018, was utilized in this study to explore the impact of internal control quality and analyst following on debt financing costs. A significant negative correlation was found between the quality of internal control and the costs of debt financing. Analyst following presents a substitution effect in the relationship between internal control quality and debt financing costs. The impact of analyst following and internal control quality on reducing debt financing costs also differs significantly among companies with different ownership, region, industry, and market position characteristics. These results may provide empirical data support as Chinese decision-makers improve internal control quality and optimize the investment environment to effectively mitigate the financing constraints on listed companies.