Strategic deviation and the cost of debt financing
Strategic deviation and the cost of debt financing
This study investigates how strategic deviation affects the cost of debt financing. Existing literature generally focuses on finance and governance perspectives, overlooking the impact of corporate strategy on the cost of debt. Using a sample of Chinese listed firms, we find that firms with higher strategic deviation incur higher costs of debt. In addition, we find that operational risk, information risk and agency risk are influential in determining the nexus between strategic deviation and the cost of debt. Moreover, we further find that this positive nexus is less pronounced in the presence of overseas and senior top management team (TMT) members. Our findings emphasize the importance of corporate strategy in understanding the cost of debt financing and highlight the role of TMT members' characteristics in mitigating the costs of debt for firms with strategic deviation.
China, agency cost debt risk, cost of debt, informational risk, operational risk, strategic deviation, Upper echelons attributes, Strategic deviation, Firm's risk, The cost of debt
Ye, Zhiwei
e8e56013-efea-4de3-90fd-e003ecb358f5
Shahab, Yasir
4b7e7f68-ab37-4182-acf2-c80ca3ea29db
Riaz, Yasir
7e2e5545-45f3-4793-acca-2da290d66377
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Alhares, Aws
592813f6-103a-4a81-90ab-391a17bd87f3
August 2023
Ye, Zhiwei
e8e56013-efea-4de3-90fd-e003ecb358f5
Shahab, Yasir
4b7e7f68-ab37-4182-acf2-c80ca3ea29db
Riaz, Yasir
7e2e5545-45f3-4793-acca-2da290d66377
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Alhares, Aws
592813f6-103a-4a81-90ab-391a17bd87f3
Ye, Zhiwei, Shahab, Yasir, Riaz, Yasir, Ntim, Collins and Alhares, Aws
(2023)
Strategic deviation and the cost of debt financing.
Economic Modelling, 125, [106371].
(doi:10.1016/j.econmod.2023.106371).
Abstract
This study investigates how strategic deviation affects the cost of debt financing. Existing literature generally focuses on finance and governance perspectives, overlooking the impact of corporate strategy on the cost of debt. Using a sample of Chinese listed firms, we find that firms with higher strategic deviation incur higher costs of debt. In addition, we find that operational risk, information risk and agency risk are influential in determining the nexus between strategic deviation and the cost of debt. Moreover, we further find that this positive nexus is less pronounced in the presence of overseas and senior top management team (TMT) members. Our findings emphasize the importance of corporate strategy in understanding the cost of debt financing and highlight the role of TMT members' characteristics in mitigating the costs of debt for firms with strategic deviation.
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Accepted/In Press date: 12 May 2023
e-pub ahead of print date: 18 May 2023
Published date: August 2023
Additional Information:
Funding Information:
The authors are grateful to the editor Prof. Sushanta Mallick and two anonymous reviewers for their constructive and helpful comments. Yasir Shahab acknowledges the financial support from the “National Natural Science Foundation of China” for “ Research Fund for International Young Scientists ”, Grant Number: 72150410446 and “Funds for High-Level Talents of Xijing University (2019) ”, Grant Number: XJ19B02 .
Publisher Copyright:
© 2023 Elsevier B.V.
Keywords:
China, agency cost debt risk, cost of debt, informational risk, operational risk, strategic deviation, Upper echelons attributes, Strategic deviation, Firm's risk, The cost of debt
Identifiers
Local EPrints ID: 477571
URI: http://eprints.soton.ac.uk/id/eprint/477571
ISSN: 0264-9993
PURE UUID: 00e57d0f-01c0-4444-8526-1a72462a0146
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Date deposited: 08 Jun 2023 16:48
Last modified: 17 Mar 2024 02:27
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Author:
Zhiwei Ye
Author:
Yasir Shahab
Author:
Yasir Riaz
Author:
Aws Alhares
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