Regulatory quality, financial integration and equity cost of capital

Nagaraj, Priya; Zhang, Chuanqian

doi:10.1111/roie.12403

Cited by 7 publications

(2 citation statements)

References 80 publications

(76 reference statements)

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“…Franzen and Weißenberger (2018) pointed out that differences in reporting cultures between the US and European countries and lack of experience in providing segment reporting in European countries would result in lower segment reporting quality. Prior studies show that differences in country‐level factors have an impact on reporting quality and its consequences (e.g., El Ghoul et al, 2018; Hope, 2003; Leuz et al, 2003; Nagaraj & Zhang, 2019).…”

Section: Introductionmentioning

confidence: 99%

IFRS 8 and the cost of capital in Europe

2022

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This study examines segment reporting information usefulness after the adoption of IFRS 8 in 18 European Union countries. Specifically, 1) we introduce a new comprehensive measure of segment reporting quality that reflects four different dimensions of segment information, 2) we investigate the impact of segment reporting quality on the cost of equity and debt capital after the adoption of IFRS 8, and 3) we investigate the moderating role of the country-level enforcement system on the association between segment reporting quality and the cost of equity and debt capital after the adoption of IFRS 8. Using a selfconstructed segment reporting quality measure and a sample of 884 firm-year observations over the period of 2007 to 2011, we provide evidence that investors and lending institutions find no change in the usefulness of segment reporting after the adoption of IFRS 8. Our study is original in using a comprehensive measure of segment reporting quality. Furthermore, our study is the first to examine the relationship between segment reporting quality and the cost of debt capital after the adoption of IFRS 8 and the moderating role of the country-level enforcement system. Our findings provide useful insights to regulator and accounting standard-setting bodies about segment reporting.

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Section: Introductionmentioning

confidence: 99%

IFRS 8 and the cost of capital in Europe

2022

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“…These variations are present in bankruptcyrelated regulations: available financing sources (Booth et al, 2001), the level of information asymmetry, agency problem, taxation, policies regarding the resolution of creditor conflicts (Wald, 1999), protection of creditors (Gonzalez and Gonz alez 2008), heterogeneities among national cultures of countries (Chui et al, 2002) and state policies regarding privatization, financial liberalization, level of real interest rates and the reduction in the cost of equity capital due to appreciating market price to earnings ratios (Singh, 1995). Recent studies find that firms operating in economies with a high level of regulatory quality enjoy a low cost of capital (Nagaraj and Zhang, 2019;Mahmood et al, 2019a, b). Such a low cost of capital enables firms to invest in more and more value-enhancing investment projects.…”

Section: Regulatory Qualitymentioning

confidence: 99%

Do corporate financial flexibility, financial sector development and regulatory environment affect corporate investment decisions?

Mahmood

Rashid

Rizwan

2021

JEAS

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PurposeThis study aims to examine how corporate financial flexibility, financial sector development and the regulatory environment influence corporate investment decisions in an emerging economy after controlling for several macroeconomic factors.Design/methodology/approachThe authors estimated random-effects models to empirically examine the impacts of corporate financial flexibility, banking sector development, equity market development, regulatory quality and corruption on corporate investment decisions. The empirical analysis is based on an unbalanced annual panel data set of a sample of 198 non-financial firms listed on the Pakistan Stock Exchange for the period 1992–2018.FindingsThe results show that financially flexible firms tend to invest more. The increased banking sector development, stock market development and better regulatory quality play a pivotal role for enabling firms to increase their investment ability. However, the results reveal that corruption acts as a barrier and reduces corporate investments during the examined period. The results suggest that unused borrowing capacity is a good source of financial flexibility. These results strongly support the pecking order theory, which explains why firms incline toward internal sources for financing their investments and why they prefer debt to equity when go for external financing.Practical implicationsThe empirical findings of the study enable corporate managers to make better financing and investment decisions by understanding the significance of the attainment and maintenance of the corporate financial flexibility to enhance firm value. Furthermore, the findings enable corporate managers to examine and understand the role of banking sector development (BSD), equity market development (EMD), regulatory quality and the role of corruption in affecting corporate firms' investment ability, allowing them to make appropriate investment decisions, especially from an emerging economy perspective. The findings also help investors in making appropriate investment decisions while they are purchasing financial assets. Finally, the findings of the study have some implications for regulators as well. Specifically, the findings suggest that the authorities should implement economic and financial policies favoring banking sector as well as equity market development to enhance corporate investment.Originality/valueThe study significantly adds to the literature by examining the impact of financial flexibility, financial sector development and regulatory environment on corporate investment decisions. According to the authors' knowledge, the empirical evidence examining the impact of all of these factors on corporate investment is very scarce. Therefore, this study is an effort to fill the gap left in the literature.

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