The impact of annual reports transparency and comment letters on the cost of debt: Evidence for China

Xiuli Zhu, Xiaohui Li, Kexin Zhou and Yuying Yu

Pacific-Basin Finance Journal, 2023, vol. 77, issue C

Abstract: Prior research has found that greater information transparency is positively related to a lower cost of debt. This paper studies the complementarity effect of the annual report comment letters (ARCLs) and transparency on corporate debt covenants. We find that firms receiving ARCLs charge a higher cost of debt, and the higher the frequency of ARCLs receipt, the longer the ARCLs, the requirement for qualified verification opinions, and the inclusion of debt-related keywords, the higher the cost of debt. Furthermore, information transparency can mitigate the positive regulatory effects. These findings can provide regulators, banks, and managers with a deeper understanding of the role of information disclosure and government regulation in debt covenants.

Keywords: Annual report comment letters; Information transparency; Cost of debt; Regulation effects (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:77:y:2023:i:c:s0927538x23000082

DOI: 10.1016/j.pacfin.2023.101942

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