Accounting Information Quality, Board Narrative Disclosure, and the Cost of Debt

Abstract

Company information disclosed in a financial statement is used as a reference by investors to assess corporate risk and investment-related decision-making. The higher the risk is, the higher the cost of debt (COD) demanded by an investor. This study investigates the influence of accounting information quality and the characteristics of the board of directors manifested in the report of the board of directors, which is a narrative report drafted by the board of directors, in the company's annual report on COD. The sample used is 106 nonfinancial companies listed on the Indonesia Stock Exchange between 2014 and 2015. The method used is a mixed method in terms of data collection. Quantitative data from annual reports and qualitative data from the report of the board of directors were analyzed by quantitative content analysis. The results of this study reveal that the quality of accounting information as measured by the earnings income has a significant negative effect on COD; however, if it is measured by earnings, predictability does not affect COD. In addition, the report of the board of directors has a significant positive effect on COD. These results indicate that COD is influenced by both accounting information in the financial statement and also by nonaccounting factors, i.e., characteristics of the board of directors, which is reflected in the report of the board of directors in the annual report.