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Internal control reporting and cost of bond financing: Evidence from China

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  • Wang, Kun Tracy
  • Wu, Yue
  • Ho, Kin-Yip

Abstract

Using a sample of Chinese listed firms and a difference-in-differences research design, we examine how internal control reporting (ICR) affects firms’ bond cost. We find that, during the voluntary ICR period, bondholders only reward voluntary disclosers perceived as having higher quality of ICR and internal control systems. In addition, during the mandatory ICR period voluntary disclosers experience a significantly lower cost of debt than that of nonvoluntary disclosers, which may be explained by voluntary disclosers’ higher quality of internal control. The difference in debt cost is more pronounced when firms operate in high litigation risk and competition-intensive industries, and when the firms’ information environment is weak or the bondholders have a high demand for ICR information.

Suggested Citation

  • Wang, Kun Tracy & Wu, Yue & Ho, Kin-Yip, 2021. "Internal control reporting and cost of bond financing: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1323-1346.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:1323-1346
    DOI: 10.1016/j.iref.2019.11.016
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    More about this item

    Keywords

    China; Cost of debt; Disclosure regulation; Information environment; Internal control reporting;
    All these keywords.

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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