Cost Of Debt Capital Research Articles

Resource allocation choices in asset‐intensive industries

AbstractThe purpose of this study is to examine the determinants of tangible and intangible resource allocation in asset‐intensive organizations, by employing a qualitative and a quantitative study in the setting of the maritime shipping industry. First, the study employs seven in‐depth interviews to identify the firm‐specific factors that shape resource allocation decision‐making. Second, the study utilizes a unique panel dataset of public maritime shipping companies for the period 2010–2020 to empirically investigate the identified determinants of resource allocation choices. The results indicate that factors, such as firm's risk‐seeking profile, smaller size, limited cash liquidity, capability to access capital, lower cost of equity capital, higher cost of debt capital, lower level of insiders' ownership, younger CEO, and limited environmental‐related disclosures are positively affecting the number of tangible resources allocated. The findings, apart from enriching the body of literature, have some managerial implications that are discussed herein.

Unravelling the Missing Link: Climate Risk, ESG Performance and Debt Capital Cost in China

The concept of sustainability has developed significantly from an unrealistic abstract ideology to a framework that can measure companies’ environment, society and corporate governance (ESG) performance. While extensive research has established some relational impacts of ESG performance on debt capital cost (DCC), this paper contends that a comprehensive review of these impacts is incomplete without screening them through the lens of climate risk (CR). Companies are subjected to CR that comprises physical and transition factors resulting from climate change. This paper aims to unravel the missing link between CR and ESG performance, and the consequent impacts on DCC. This paper illustrates using Chinese companies that operate in an emerging economy with robust industrial activities under intense global scrutiny to achieve emission reduction and meet carbon neutrality goals. Through considering CR, the impacts of ESG performance on DCC are explained using panel data and mediation effect tests with A-share listed enterprises on the Shanghai and Shenzhen stock exchanges from 2016 to 2020. The findings show that ESG performance significantly and negatively affects DCC, with debt default risk playing a mediating role. The negative effect of ESG performance on DCC is more significant in non-polluting enterprises and non-state-owned enterprises.

Can enhanced CSR quality reduce the cost of debt capital? An empirical analysis of CEO expertise and non-financial reporting practices in China

This study aims to investigate whether stockholders and creditors place a positive value on corporate social responsibility (CSR) information disclosure when making decisions about providing financing to firms, thereby influencing their investment choices. Utilizing data from the China Stock Market & Accounting Research Database (CSMAR) and HEXUN, the study analyzes CSR disclosures and financial data of 7,123 firm-year observations of A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2012 to 2020. A comprehensive methodology involving regression analysis was applied to assess the relationship between CSR quality and the cost of debt capital. Various robustness tests, including different model specifications and alternative variable measurements, were conducted to ensure the reliability and validity of the findings. The results obtained indicate that higher CSR quality significantly correlates with a lower cost of debt capital, supporting the hypothesis that improved CSR disclosure reduces perceived credit risk. However, CEO financial expertise shows a significantly positive relationship with the cost of debt capital. Furthermore, the study reveals that CSR assurance and engagement with Big 4 accounting firms do not noticeably affect the price of debt capital, whereas mandatory CSR reporting does. The findings underscore the importance of CSR quality in financial decision-making, offering valuable insights. AcknowledgmentThis paper is co-funded by the European Union through the European Education and Culture Executive Agency (EACEA) within the project “EU Best Practice of Life Cycle Assessment, Social, Environmental Accounting and Sustainability Reporting” – 101047667-ERASMUS-JMO-2021-MODULE https://jm.snau.edu.ua/en/eu-best-practice-of-life-cycle-assessment-social-environmental-accounting-and-sustainability-reporting/ Oleh Pasko expresses sincere gratitude for the support from the Kirkland Research Program, generously provided by the Leaders of Change Foundation established by the Polish-American Freedom Foundation.

How do ESG controversies moderate the nexus between ESG performance and cost of capital? Evidence from European listed companies

PurposeThis study aims to investigate the effect of ESG controversies and their moderating role in ESG performance and the cost of equity and overall, short-term and long-term debt capital relationship in European listed companies.Design/methodology/approachThe study employs two-way fixed effects panel linear regression models on the balanced longitudinal dataset of 231 European non-financial companies listed in the MSCI Europe Index in 2017–2022. To check the robustness, the study utilises the fixed effects logistic regression models with heteroskedasticity-consistent standard errors.FindingsThe study reveals the significant effect of ESG performance (negative) and ESG controversies (negative) on the cost of debt capital and the substantial moderating effect of ESG controversies (positive). Additionally, it provides empirical evidence of the crossover moderating effect of ESG controversies in ESG performance and cost of equity relationship.Research limitations/implicationsThe findings contribute to corporate practice and empirically support legitimacy and stakeholder theories.Practical implicationsCompanies can utilise the results to proactively enhance their internal policies and behaviour to align with ESG practices and avoid ESG controversies, which will translate into reduced equity capital costs for shareholders and a lower cost of debt capital charged by creditors.Originality/valueTo the best of the authors’ knowledge, this is the first study to comprehensively investigate the influence of ESG controversies and their moderating effect in the context of the equity and debt capital cost for European listed companies.

Can digital transformation reduce the cost of debt capital? Empirical analysis based on the perspective of financial situation

ABSTRACT This article empirically tests the effects of digital transformation on the cost of corporate debt capital by taking Chinese A-share listed companies in Shanghai and Shenzhen as research samples. The results show that enterprise digital transformation can effectively reduce the cost of debt capital. Further, using the financial situation as the threshold variable and applying the panel data threshold effect model, it is found that only the digital transformation of enterprises with good financial situations can reduce the cost of debt capital. In contrast, the digital transformation of enterprises with poor financial situations will increase the cost of debt capital instead.

Review of the Impact of Corporate CSRD on the Capital Cost of Debt

With the expansion of credit scale, green credit releases a large number of ecological dividends. CSR reporting is different from tightly regulated financial reporting and there are no uniform standard to regulate and monitor its disclosure. At the same time, because CSR reports mainly contain non-financial information of text, and text is more flexible and easier to manipulate than numbers, compared with financial reports, CSR reports have a large space for subjective manipulation, which runs counter to the original intention of reducing information asymmetry. Existing studies have confirmed that CSR intonation can provide incremental information to external information users, so it is worth further exploring whether creditors will obtain information from CSR reports when making credit decisions. Therefore, this paper tries to take CSR intonation as the entry point, summarize the motivation and consequences of CSRD, the relationship between social responsibility and debt capital cost, discuss the impact of CSRD behavior on the financing ability of enterprises, further improve the theoretical basis and conclusion of CSRD and enterprise financing ability, and promote the sustainable development of enterprises.

Patents, information asymmetry and the cost of debt capital of SMEs: Evidence from South Korea

Patents, information asymmetry and the cost of debt capital of SMEs: Evidence from South Korea

경영권방어수단과 타인자본비용

[Purpose]This study examines the effect of Anti－Takeover Provisions(ATP, hereinafter referred to as ATP) on the cost of debt capital using credit ratings and borrowing interest rates. Through this, it is intended to clarify whether creditors interpret ATP, which means weakening shareholder rights, differently from shareholders.
 [Methodology]From 2011 to 2018, domestic companies listed on the KOSPI Market excluding the financial industry were selected as samples, and ATP were identified through the articles of incorporation. We conducted a regression analysis to verify the effect of Anti－Takeover Provision on the cost of debt.
 [Findings]As a result of the analysis, companies with ATP had relatively lower credit ratings and higher borrowing interest rates than those without ATP. And the more ATP they had, the lower their credit rating was. This is consistent with overseas empirical studies that the weakening of shareholder rights is also disadvantageous to creditors, supporting that mergers and acquisitions can benefit from coinsurance effect, which reduces the risk of default by improving the company’s debt capacity after the merger.
 [Implications]This study has contributions in that it analyzed the impact of strengthening (or weakening) shareholder rights on creditors using domestic data. Research and systems related to corporate governance have been dealt with a lot from the perspective of shareholders, but there is a lack of various studies on how they affect creditors. Creditors are major stakeholders of the company and play an important role in corporate governance. In this study, it is meaningful in that the impact of changes in corporate governance on them from the perspective of creditors was analyzed through ATP.

Corporate ESG Performance and Cost of Debt Capital

The impact of corporate ESG performance on the cost of debt capital is examined using A-share listed companies in Shanghai and Shenzhen from 2007 to 2021 as the research sample. The empirical results show that ESG performance has a significant negative relationship with the cost of debt capital, i.e., firms can reduce their cost of debt capital by improving ESG performance. It is further found that ESG performance has a stronger effect on reducing the cost of debt capital for non-state-owned enterprises than for state-owned enterprises; ESG performance has a more significant effect on reducing the cost of debt capital for enterprises with high quality of internal control than for enterprises with low quality of internal control; and the effect on reducing the cost of debt capital is better for enterprises with high level of external supervision than for enterprises with low level of external supervision.

Corporate Tax Avoidance and the Cost of Debt Capital of Listed Manufacturing Companies in Nigeria

Purpose: The study “Tax Avoidance and Cost of Debt Capital in Nigerian Manufacturing Companies” is empirical research that investigates the relationship between tax avoidance and cost of debt capital in Nigerian manufacturing companies.Design/Methodology: The study uses a quantitative research design, which involves the collection of numerical data to test hypotheses. Specifically, the study uses a correlational design to establish the relationship between tax avoidance and cost of debt capital in Nigerian manufacturing companies. The study uses a purposive sampling technique to select 42 Nigerian manufacturing companies listed on the Nigerian Stock Exchange. The study collected secondary data from the annual reports and financial statements of the selected companies for the period 2011–2020.Findings: The results of the empirical analysis include the fact that the cost of debt capital was found to have a strong and positive link with tax avoidance. As a result, tax avoidance is regarded as a symptom of rising information risk in Nigerian manufacturing firms, prompting investors to demand a high rate of return. Total accruals also showed a positive and significant relationship between tax avoidance and cost of debt.Practical Implications: The findings of the study indicate that policymakers may need to implement measures to improve tax enforcement and increase transparency in financial reporting. This could involve increasing resources for tax authorities, strengthening legal frameworks for tax compliance, and promoting better corporate governance practices among companies.

Two Types of Payments of Tax on Profit: Advanced Payments and at the End of Periods: Consideration within BFO Theory with Variable Profit

Two modifications of a modern theory of capital structure—the Brusov–Filatova–Orekhova (BFO) theory—with variable income are considered: (1) with the income tax payments at the end of periods and (2) with advance income tax payments. BFO formulas for the WACC, and for company capitalization, V, were derived for these two cases. Using the obtained formulas, the dependence of the weighted average cost of capital, WACC; the discount rate; WACC–g (here, g, is the growth rate); company value, V; and the equity cost, ke, on the leverage level, L, at different values of g, at different values of the debt capital cost, kd, and at different values of company age, n, were studied. Comparing the results for cases (1) and (2) shows that case (2) is always preferable for both the company and the regulator. Recommendations have been developed for both parties to expand the practice of advance income tax payments. The managerial implications are as follows. Companies may choose to pay income tax either in advance or at the end of the reporting period in accordance with current results and tax laws. The developed methodology makes it possible to study companies with growing profits and companies with falling profits, which is very important in practice. It also allows the study of companies for which profits could rise and fall in different periods.

ОЦІНКА СТАНУ БІЗНЕС-СЕРЕДОВИЩА УКРАЇНИ У КОНТЕКСТІ ІННОВАЦІЙНОЇ ДІЯЛЬНОСТІ

In this study, an analysis of the development prospects of innovatively active enterprises was carried out using the example of the most successful functioning Ukrainian enterprises. It is proposed to estimate the actual annual profit of the business using the indicator of economic added value, which is correlated with the indicators of the efficiency of innovative activity. The evaluation of the actual annual profit of the business using the indicator of economic added value (economic profit) is argued, since the accounting profit is not a qualitative characteristic of innovative development. An assessment of the profitability of the leading innovatively active enterprises was carried out – SE «Prozorro», LLC «Nova Poshta», JSC «Farmak», LLC «Scientific and technical complex «Metalurh», SE «Southern State Design and Research Institute of the Aviation Industry», PJSC «Interpipe». For the overall assessment of efficiency, the weighted average cost of capital, the indicator of economic added value, the return on capital of each of the analyzed enterprises, gross profit and net financial result were calculated. At the same time, it is noted that the cost of equity capital reflects the riskiness of investing in the company's equity capital, while the cost of debt capital is the risk of default by the company and tax benefits associated with the use of borrowed funds. An important remark in the context of this study is the assessment of innovative development, more specifically, the innovative activity of enterprises – in a relatively stable economic time that preceded the war in Ukraine. Because it is clear that a return to the previous indicators and surpassing them is possible only in a relatively stable economic environment. It remains obvious that the increase in the added value of products can be achieved by reducing the volume of intermediate consumption, with the help of improving integration processes, in the creation of chains of added value of products, renewal of production assets, scalability of enterprises, increasing the level of technical and technological equipment of Ukrainian enterprises. Proposals have been made regarding the general system of assessing the business value of innovatively active enterprises of Ukraine. This study is designed to outline the main prospects for the development of innovatively active enterprises of Ukraine.

Praktik akuntansi lingkungan dan biaya modal pada perusahaan di Indonesia

Observe the development of social responsibility, especially in the field of environment, and the performance of corporate governance in Indonesia are important factors in the company's operations. A number of companies do not participate in this disclosure activity, which will result in new costs that will be borne by the company. The high and low cost of capital owned by a company will show how much risk the company will accept in order to obtain funding for the company's sustainability. This research was conducted to produce an analysis of the effect of the level of environmental accounting practices on the cost of equity capital or the cost of debt capital and the effect of corporate governance performance on the cost of equity capital or the cost of debt capital. This study uses data on financial statements and sustainability reports of companies listed on the Indonesia Stock Exchange from 2016 to 2020. The test results show that financial environmental accounting practices and corporate governance performance consist of block ownership, board size, gender diversity, and board tenure. has a significant effect on the cost of equity capital. on the cost of debt capital, only the board size variable has a significant effect. This research encourages companies to be able to participate in the disclosure of environmental performance and corporate governance.

Segment Reporting and Cost of Capital of Banks with International Authorization in Nigeria

This study investigated the effect of segment reporting on cost of capital of selected deposit money banks in Nigeria. The dependent variable of this study was cost of capital which was proxied by cost of debt, while segment reporting being the independent variable was proxied by business segment information, geographical segment information and external customer information. The research design adopted for the study was ex post facto, secondary data was employed, three hypotheses were also tested, and purposive sampling technique was employed. The data for the study was analyzed using ordinary least square technique and the statistical tool used was STATA 16. From the outcome of the analysis, it was found out that business segment information and geographical segment information has significant effect on cost of debt capital of selected banks in Nigeria. Thus it was concluded that reporting separate financial information about reportable segments have the likelihood to reduce the banks cost of debt. Based on the outcome of this study, it was recommended that banks should in addition to the disclosure requirement of IFRS 8 make other voluntary and non-financial information as this will completely eliminate information asymmetry and in both the short and long run reduce their cost of debt.

Other comprehensive income and the cost of debt capital

The purpose of this paper is to examine the association between the cost of debt and other comprehensive income (OCI) and its components for a sample of US firms. The empirical analysis is conducted on a sample of 4,350 firm-years observations for the period 2008–2018. In conducting the analysis, we first run the models using ordinary least squares (OLS) regressions and correcting for heteroskedasticity using White (1980) standard errors. Then, we compute the F-statistic using a Wald test. The main results indicate that the separate disclosure of foreign currency translation adjustments, pension adjustments, available-for-sale marketable securities, and derivative securities and/or foreign currency hedging adjustments and the total OCI provide information that is relevant for the cost of debt. Our results will benefit creditors, standard setters, and regulators when examining the effect of each component of OCI on the cost of debt capital. Our study enriches the recent stream of research that investigates the usefulness of decomposing other comprehensive income into its components. This paper contributes to the accounting literature on the value relevance of OCI to the users of the financial statements by showing the effect of OCI on the cost of debt capital. This study supplements and extends the prior research, which documents the value relevance of OCI to the cost of equity capital

Will the Reduction of CO2 Emissions Lower the Cost of Debt Financing? The Case of EU Countries

The main objective of this article is to test the relationship between the intensity of CO2 emissions and company’s cost of debt capital. This study fills a gap in the financial literature on this compound by examining a sample of 225 large nonfinancial enterprises operating in 15 EU countries in the years 2018–2021. The fractional logit regression controlling for company’s characteristics (assets, profitability, liquidity and leverage) was used. The results show that by reducing the intensity of CO2 emissions, a company can reduce the cost of debt. This relationship was confirmed for three measures of intensity, i.e., CO2 emissions in relation to revenues, assets and number of employees. Markets and financial institutions impose an additional risk premium in relation to companies operating in an industry considered to be comprised of strong CO2 emitters. The use of the latest data for a wide sample of European enterprises provides an up-to-date assessment of the analyzed issues and the results can be used by enterprises and public authorities when analyzing the benefits of implementing a technology that reduces CO2 emissions.

Does Real Earnings Management Explain Cost of Debt? Evidence from an Emerging Economy

This study tested the relationship between real earnings management and debt cost in Vietnam, a developing market. We used the Generalized Method of Moments (GMM) Technique on a sample of 241 listed firms in Vietnam for 7 years from 2010 to 2016, with a total of 1687 observations collected. The regression result showed a positive association between real earnings management and cost of debt. The results of the study revealed that real earnings management is shown through the rising transactions and directly affected financial reports, thereby affecting creditors by affecting their cost of debt. This can be seen as the driving force for listed companies to increase the quality of their financial information. Our study only focussed on earnings manipulation through real earnings management (REM) to affect transaction costs in Vietnam. The research explains the relationship between managerial behavior (real earnings management) and direct influence on creditors' behavior (cost of debt capital). The result would give outside stakeholders an overall view about the usage of REM in Vietnamese listed firms, the reasonable action of investors, financial institutions, banks, etc on the debt market to reduce risk and the signal of warning for regulators and policy-makers. Keywords: real activities earnings management, cost of debt capital

The Effect of Environmental Financial Accounting Practices on the Cost of Capital in Public Companies Listed on the Indonesia Stock Exchange

This study aims to identify the relationship between the Level of Environmental Financial Accounting Practices (EFAP) and the Cost of Capital. The audit results from the financial statements and the Sustainability Report from the 2016 – 2019 period are secondary data used in the research. Fulfillment of the criteria to be used as a research sample amounted to 56 companies which were then tested using the Eviews 10 program. The study proved that company size (SIZE) had a significantly negative effect on the Cost of Equity Capital. Market to Book Ratio (MTB), Return on Assets (ROA), Cash Flow Operations (CFO), Cash Ratio (CR), and Net Loss (LOSS) have no significant effect on the Cost of Equity Capital. Company size (SIZE), Leverage (LEV), and Net Loss (LOSS) have a significant effect on the Cost of Debt Capital in addition, Environmental Financial Accounting Practices (EFAP), Market to Book ratio (MTB), Return on Assets (ROA), Cash Flow Operations (CFO), and Cash Ratio (CR) have no significant effect on the Cost of Debt Capital.

기업혁신과 타인자본비용의 관계 : 첨단·비첨단산업 및 경영진-종업원 보상평등

기업혁신과 타인자본비용의 관계 : 첨단·비첨단산업 및 경영진-종업원 보상평등

Mandatory CSR Disclosure, CSR Assurance, and the Cost of Debt Capital: Evidence from Taiwan

This study examined the impact of mandatory corporate social responsibility (CSR) disclosure, CSR assurance and the reputation of assurance providers (accounting firms) on the cost of debt capital. Our difference-in-difference research design in conjunction with univariate and multiple regression analysis was assessed using a large sample of firms listed on the Taiwan Stock Exchange and the Taipei Exchange. Our empirical results revealed that mandatory CSR assurance on CSR disclosure provided by accounting firms tended to reduce the cost of debt capital. However, contrary to expectations, the reputation of the accounting firm (Big 4 accounting firms vs. non-Big 4 accounting firms) tasked with providing CSR assurance did not have a significant effect on the cost of debt capital. These results have implications for firms seeking an assurance provider as well as for Big 4 accounting firms. These results also provide specific evidence relevant to government agencies seeking to update policies and extend the scope of mandatory CSR assurance to other environmentally sensitive industries.