Investigating the mediating role of agency cost on relationship between earning quality, discretionary disclosure and cost of capital

Document Type : Research Paper

Authors

1 Department of Accounting Khorramshahr International Branch, Islamic Azad University, KHorramshahr, Iran

2 Associate professor, Department of Accounting, Imam Khomeini International University, Qazvin, iran

3 Assistant professor of Accounting, Shahid Chamran university, Ahvaz, iran

4 Assistant professor, Department of Mathematics and Statistics, Abadan Branch, Islamic Azad University, Abadan, Iran

Abstract

The cost of capital is one of the most important and effective financial tools in making many management and investment decisions that are affected by several factors. The purpose of this study is to investigate the effect of two key factors of earning quality and voluntary disclosure on the cost of capital by considering the mediating role of agency costs using structural equation modeling. The research is of the quantitative and causal type, and in terms of the implementation method, it is in the correlation category, and based on the purpose, it is of the applied type. A statistical sample from the population of companies listed on the Tehran Stock Exchange including 174 companies during the period 2015-2020 has been selected based on the method of systematic elimination. Due to the normality of the collected data, the asymptotic free distribution (ADF) method has been used to estimate the model which makes it possible to investigate the direct and indirect relationships among the variables. The effect of indirect happens when the effect of independent variables on the dependent variable is passed on by the intermediary variable. In the present research, agency cost is placed as an intermediary variable between two independent variables (quality of earning and discretionary disclosure) and a dependent variable (cost of capital) and causes an indirect relationship between them. By considering the direct and indirect path between the studied variables, the test result obtained a positive and significant relationship between agency costs and capital costs. The results also show that earning quality does not directly affect on the cost of capital, but indirectly hurts the cost of capital due to agency costs. The effect of total earning quality on capital cost is significant and negative. Also, the direct effect of discretionary disclosure on the cost of capital is not significant, while the indirect effect and its total effect on the cost of capital due to agency costs are negative and significant.

Keywords

References

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History

  • Receive Date: 22 November 2021
  • Revise Date: 06 May 2022
  • Accept Date: 14 May 2022

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