Business strategy and the cost of equity: the mediating role of accounting information quality

Abstract

PurposeThe study examines the mediating role of accounting information quality (AQ), a proxy for firms' information risk, in firms' business strategy and the cost of equity (COE) nexus to highlight how AQ provides a mechanism through which a company's business strategy affects its COE.Design/methodology/approachThe research study utilises data from 12,100 firm-year observations of United States (US) non-financial firms from 2001 to 2017, drawn from multiple databases, and employs the bootstrapping method of mediation analysis to test the indirect effect of AQ on the business strategy–COE relationship. The authors rely on Miles and Snow's two pure business strategy typologies, prospectors and defenders and use innate accrual quality and implied COE models to measure AQ and COE, respectively.FindingsThe results suggest that AQ partially mediates the relationship between business strategy and COE. The authors document that while innovative-oriented prospector firms have a lower AQ and a higher implied COE, efficiency-oriented defenders are associated with a higher AQ and lower COE. The higher (lower) COE of prospector (defender) firms is observed to be partly due to their lower (higher) AQ. The results indicate that while the idiosyncratic risk implied in firms' strategic orientation can directly influence their COE, the business strategy implications on firms' COE can be indirect through their AQ, a source of information risk.Research limitations/implicationsDue to data limitation, it was not possible to measure all possible methods of measuring implied COE.Practical implicationsThe paper highlights the role of firm's business strategy in pricing decisions by investors.Originality/valueThe paper contributes to the existing literature by providing evidence that AQ, a proxy for information risk, is a mechanism through which business strategy affects firms' COE. The authors thus complement extant literature to empirically test the information risk effect inherent in strategic orientation on security pricing.

Penghindaran Pajak dan Strategi Perusahaan

“…Ketika membahas teknik penghindaran pajak yang dilakukan oleh pelaku bisnis, rencana bisnis defender selalu bertujuan untuk efisiensi biaya (Kwakye & Ahmed, 2023). Strategi pertahanan untuk bisnis bertujuan untuk efisiensi biaya dengan mengurangi biaya produksi, biaya operasional, dan biaya pajak yang berkaitan dengan pendapatan.…”

“…Perbedaan Book Tax Difference (BTD) dan Effective Tax Rate (ETR) akan digunakan sebagai proksi penghindaran pajak dalam penelitian ini. Menurut Kwakye & Ahmed, (2023) Effective Tax Rate (ETR) merupakan ukuran yang cocok untuk aktivitas penghindaran pajak karena beragam karakteristiknya. Effective Tax Rate (ETR) menghitung korelasi antara total beban pajak pada tahun tertentu, termasuk pajak tangguhan dan laba sebelum pajak.…”