Earnings Quality and the Cost of Debt of SMEs

Beltrame, Federico; Floreani, Josanco; Sclip, Alex

doi:10.1007/978-3-319-54891-3_3

Cited by 8 publications

(9 citation statements)

References 30 publications

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“…As expected, the results show a negative and statistically significant coefficient for the variable AQ. This finding corroborates the existence of a negative relationship between the earnings quality and the cost of debt for French listed firms, similar to that found in previous studies (Barath et al, 2008; Beltrame et al, 2017; Carmo et al, 2016; Francis et al, 2005; Vander Bauwhede et al, 2015). This result means that French lenders price the information conveyed through accounting earnings to reduce agency cost of debt.…”

Section: Empirical Results and Discussionsupporting

confidence: 92%

“…Similarly, using a large sample of Belgian SMEs, Vander Bauwhede et al (2015) show that firms’ FRQs have a negative relationship with the cost of debt. Likewise, Carmo et al (2016) for a sample of Portuguese and Beltrame et al (2017) for Italian firms find a negative relationship between the information risk proxied by earnings quality and the cost of debt.…”

Section: Earnings Quality and Cost Of Debt: Literature Review And Hypmentioning

confidence: 95%

“…AQ is estimated endogenously in the first-stage regression, and the cost of debt is estimated in the second-stage regression as the dependent variable. Following Beltrame et al (2017), in the first stage, we estimate AQ using the following model:…”

Section: Sensitivity Analysismentioning

confidence: 99%

“…Following Beltrame et al (2017), in the first stage, we estimate the innate and discretionary components of accruals using the following model:…”

Section: Sensitivity Analysismentioning

confidence: 99%

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Does earnings quality affect the cost of debt in a banking system? Evidence from French listed companies

Houcine¹

2020

Journal of General Management

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This study examines the effect of earnings quality on the cost of debt, for a sample of French listed firms from 2005 to 2015. Using accruals quality (AQ) as a proxy for the quality of financial reports, the results obtained confirm the research hypothesis formulated, showing that the quality of financial reports is negatively related to firms’ interest cost. The results also support that the innate component of AQ has a greater impact on the cost of debt than the discretionary component. The findings of this study may be of interest to managers by providing evidence on the economic consequences of improved earnings on the cost of debt and the factors that determine debt pricing in making decisions to minimize it. The results of this article are also important for creditors, that is, banks, showing that earnings are important in predicting firms’ reimbursement capacity (i.e. future cash flows) and that less estimation error in accruals improves the ability of earnings to predict future cash flows.

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Section: Empirical Results and Discussionsupporting

confidence: 92%

Section: Earnings Quality and Cost Of Debt: Literature Review And Hypmentioning

confidence: 95%

Section: Sensitivity Analysismentioning

confidence: 99%

“…Following Beltrame et al (2017), in the first stage, we estimate the innate and discretionary components of accruals using the following model:…”

Section: Sensitivity Analysismentioning

confidence: 99%

See 2 more Smart Citations

Does earnings quality affect the cost of debt in a banking system? Evidence from French listed companies

Houcine¹

2020

Journal of General Management

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show abstract

“…For this reason, the selection of measures was made, taking into account this limitation, the return on assets and the cost of debt were chosen as measures of profitability and financial risk, respectively. Some studies focusing on SMEs have shown that earnings are important for creditors and banks in assessing creditworthiness, whereby greater estimation errors in accruals worsen earnings' ability to predict future cash flows and, consequently, increase interest expenses (Beltrame et al, 2017). Conversely, managers interested in lower interest rates should improve financial reporting quality to reduce information asymmetry.…”

Section: Em and Csr Determinants In Smesmentioning

confidence: 99%

Determinants of earnings management in Spanish SMEs and its relationship with CSR: the relevance of sector life cycle stage

Martínez-Martínez

Peña

Jorge

et al. 2021

JSBED

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PurposeThis paper addresses the link between earnings management (EM) and corporate social responsibility (CSR) in small and medium-sized enterprises (SMEs).Design/methodology/approachData were collected from 317 Spanish SMEs to perform: (1) bivariate analysis between EM, CSR and some firm-factors (i.e. size, sector, sector life cycle stage, corporate age, family ownership, profitability and financial risk); and (2) multiple regression analysis for a better understanding of EM behavior and test the influence of sector life cycle stage variable.FindingsResults emphasize the relevance of the sector life cycle stage as an explanatory factor. Firms operating in sectors that are growing or declining in terms of sales are more proactive to EM than those with consolidated sales levels. Stratified regression analysis also confirms that the stage of the industry life cycle influences the EM-CSR relationship. Only for SMEs with stable sales in maturity sectors, lower interest in EM can be significantly explained by higher CSR performance. Firms with regular sales levels show a more outstanding socially responsible commitment and are less pressured to legitimize their operational decisions and therefore show lower levels of EM involvement.Originality/valueThis paper makes a twofold contribution. On the one hand, it examines the relationship between EM and CSR, focusing on SMEs' context, in which EM study could be considered incipient. On the other hand, the controversial empirical evidence on the significance and sign of EM and social responsibility link could be explained by the stage of the life cycle of the sector in which each company operates.

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Negative Earnings and the Cost of Debt: Evidence from the Emerging Tunisian Market

Houcine

2022

Contemporary Research in Accounting and Finance

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Earnings Quality and the Cost of Debt of SMEs

Cited by 8 publications

References 30 publications

Does earnings quality affect the cost of debt in a banking system? Evidence from French listed companies

Does earnings quality affect the cost of debt in a banking system? Evidence from French listed companies

Determinants of earnings management in Spanish SMEs and its relationship with CSR: the relevance of sector life cycle stage

Negative Earnings and the Cost of Debt: Evidence from the Emerging Tunisian Market

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