The Impact of Information Disclosure and Transparency Rankings System (IDTRs) and Corporate Governance Structure on Interest Cost of Debt

Abstract

The purpose of the present study is to inquire (1) whether transparency in information disclosure would create an impact on the interest cost of debt, and (2) whether corporate governance structure would impact transparency in information disclosure. Findings show that companies disclosing more transparent information benefit from a significantly lower interest cost of cost than those disclosing less transparent information. Test results supports the suggestion that increased shareholding by insiders and institutional investors contribute to a higher possibility of improved transparency in information disclosure and help reduce interest rate. In contrast, we found that increased proportion in board seats by controlling shareholders and family controlled firms structure would significantly raise the interest cost of debt. It is, therefore, established that transparency in information disclosure and types of corporate governance structure impacts on interest cost of debt.