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Financial statement comparability, state ownership, and the cost of debt: Evidence from China

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  • Majeed, Muhammad Ansar
  • Yan, Chao

Abstract

This study examines whether financial statement comparability (comparability) reduces credit risk and lowers the cost of debt. We hypothesize and document that higher comparability reduces information asymmetry and noise in debt contracting and makes monitoring of managerial activities easier, which reduces the cost of debt. However, the effect of comparability on the cost of debt for state-owned enterprises (SOEs) is insignificant. The results also suggest that competitive pressure and audit quality complement the relationship between comparability and the cost of debt. Our findings remain robust after controlling for endogeneity and in numerous empirical specifications. Overall, our results indicate that greater comparability improves credit decisions of the lenders and also benefits borrowers by reducing the financing cost.

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  • Majeed, Muhammad Ansar & Yan, Chao, 2021. "Financial statement comparability, state ownership, and the cost of debt: Evidence from China," Research in International Business and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001185
    DOI: 10.1016/j.ribaf.2021.101497
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    Cited by:

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    More about this item

    Keywords

    Comparability; Cost of debt; SOEs; Competition; China;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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