Can core competence help enterprises reduce the cost of debt? – empirical evidence based on text analysis

Changling Sun, Nian Li, Peng Gao, Muhammad Asif Khan and Zilan Bi

Applied Economics, 2023, vol. 55, issue 7, 710-723

Abstract: This article constructs the measurement index of core competence by text analysis method and empirically tests its impact on the cost of debt. We find that the stronger the core competence, the lower the cost of debt. The mechanism test shows that the impact of core competence on the cost of debt is mainly realized by reducing the default risk and alleviating the agency problem. In further research, after distinguishing the types of core competence, we find that core competence of resources, especially the tangible resources, is the key factor to effectively reduce the cost of debt; after distinguishing the nature of property rights, we find that the impact of core competence on the cost of debt mainly plays a role in non-state-owned enterprises with strong financing constraints. This article not only enriches the literature on the economic consequences of core competence and factors affecting the cost of debt, but also provides scientific support for the government and other relevant department to alleviate the problem of financing difficulties and financing expensive.

Date: 2023
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DOI: 10.1080/00036846.2022.2094329

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