The impact of disclosure quality on cost of debt – evidence from Vietnam

Ly Thi Hai Tran, Thoa Thi Kim Tu, Kieu Thi Diem Nguyen and Ho Hoang Gia Bao

Asian Review of Accounting, 2025, vol. 34, issue 3, 661-683

Abstract: PurposeThis study revisits the causal effect of a firm’s disclosure quality on the cost of debt in an emerging market, Vietnam, where the regulations regarding corporate disclosure have been upgraded.Design/methodology/approachWe employ least squares dummy variable (LSDV) and difference-in-difference (DiD) estimation with a regulation shock that forces firms to improve their disclosure quality.FindingsHigh disclosure quality firms have lower cost of debt. In addition, due to the regulation change, firms with poor disclosure quality can save around 1% in their cost of debt as their disclosure quality improves. Moreover, better disclosure quality reduces the cost of debt when firms confront heightened uncertainty or tight monetary policy.Practical implicationsThe finding implies that governmental regulations aimed at enhancing information transparency in emerging markets remain effective. Firms that improve their disclosure quality can experience a reduced cost of debt. The study highlights the economic benefits of corporate disclosures and provides insights for policymakers in emerging markets to enhance corporate disclosure standards.Originality/valueBy using the regulation change as an exogenous shock to achieve more precise identification, the paper addresses the limitations of previous studies regarding the endogeneity problem inherent in the relationship between corporate disclosure and market outcomes. Additionally, with a measure of timely disclosure based on an exogenous event, this paper provides reliable evidence on how the timeliness of disclosure affects the cost of debt. Furthermore, while several studies have investigated the relationship between disclosure quality and the cost of debt in developed markets, this research focuses on a bank-based market where loans are more common than bond issuances in corporate financing and where collateral plays a key role in securing loans.

Keywords: Disclosure quality; Annual report award; Cost of debt (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/ara/article/34/3/661/13276 ... lity-on-cost-of-debt (text/html)
https://www.emerald.com/ara/article-pdf/34/3/661/11038184/ara-01-2025-0019en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-01-2025-0019

DOI: 10.1108/ARA-01-2025-0019

Access Statistics for this article

Asian Review of Accounting is currently edited by Prof. Haiyan Zhou

More articles in Asian Review of Accounting from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().