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Accounting Quality and Debt Concentration: Evidence from Internal Control Weakness Disclosures

Abstract : This paper examines how accounting quality affects the degree of debt concentration in corporate capital structures (i.e., a firm’s tendency to predominantly rely on only a few types of debt). Motivated by theoretical and empirical research that supports a strong link between creditors’ coordination costs and debt concentration and the importance of accounting quality in reducing these coordination costs, we hypothesize that firms with low accounting quality have a more concentrated debt structure. Measuring financial reporting quality by the disclosure of material internal control weaknesses over financial reporting (ICWs), we find that ICWs lead to a significantly more concentrated debt structure. We also show that the effect of ICWs on the degree of debt concentration is stronger for more severe ICW disclosures and for firms with a higher credit risk, further reinforcing the importance of financial reporting quality in determining debt concentration.
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Preprints, Working Papers, ...
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Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Thursday, February 7, 2019 - 8:48:26 PM
Last modification on : Friday, February 8, 2019 - 1:28:23 AM




  • HAL Id : hal-02011410, version 1



Ningzhong Li, Yun Lou, Clemens Otto, Regina Wittenberg Moerman. Accounting Quality and Debt Concentration: Evidence from Internal Control Weakness Disclosures. 2014. ⟨hal-02011410⟩



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