Analyzing the Influence of Accounting Information Quality on Debt Concentration: Moderating Effects of Financial Constraints and Managerial Risk Aversion

Document Type : Research Paper


Associate Prof., Department of Accounting, Faculty of Management and Economic, Lorestan University, Khoramabad, Iran.



Objective: Enhancing the quality and reliability of accounting information augments the potential for sound decision-making and risk evaluation by external stakeholders, ultimately contributing to the rectification of shortcomings in debt contracts. The amount of borrowing from multiple sources varies greatly among companies. Large companies with high credit ratings tend to diversify into different types of debt, while small companies with low credit ratings tend to have fewer types of debt. To rationalize the constrained utilization of specific loan types, proponents highlight potential economic advantages, such as decreased bankruptcy costs, reduced expenses for information gathering, and incentives for creditors to minimize monitoring. In this article, the aim is to investigate debt concentration based on the informational dimension of accounting quality.
Methods: The current research adopts a quantitative approach within the realm of positivist inquiry. This classification stems from the fact that the concepts under investigation objectively exist in the external world, and there is complete independence between the researcher and the subject matter. Given that this research methodology revolves around delineating actual relationships within existing data, and presenting them in the form of a model, the study is categorized within the domain of descriptive research. For this purpose, data related to 120 companies listed on the Tehran Stock Exchange from 2011 to 2020 were extracted, and the combined data regression model. The Tobit model was used to test research hypotheses. To calculate the information dimension of accounting quality, Lee et al.'s (2021) model was used, and the normalized Herfindahl-Hirschman Index (HHI) was used to calculate debt concentration.
Results: The research results indicated that the information dimension of accounting quality leads to a change in debt concentration. Also, the results of the third and fourth hypotheses indicated the effect of financial constraint on the dispersion of financing. Finally, the fifth and sixth hypotheses showed the effectiveness of managers' risk-taking on the concentration and number of debts.
Conclusion: The environment in which managers operate is constantly changing as a result of fluctuations in the interests of individuals. This change in interests leads to a re-evaluation of risk by managers. Violation of contractual obligations by companies leads to the reflection of bad news in prices. In essence, to regulate and safeguard prices and mitigate the risk of information asymmetry for creditors, company managers curtail their risk-taking. Simultaneously, to secure their job positions, they adopt approaches that consider the interests of creditors. In companies with high accounting information quality, there is a greater tendency to reduce dispersion and diversity in the debt structure. This approach of centralization is a function of the company's financial situation and managers' risk-taking. Financial constraints lead to a change in the behavior of creditors towards the company and reduce their willingness to provide credit.


Main Subjects

Ahmadpour, A. & Shahsavari, M. (2014). Review of How Managers Use Engagements in Varied Levels of Financial Distress in Listed Companies of Tehran Stock Exchange. Journal of Accounting Knowledge, 5 (19), 27-50. (in Persian)
Ayotte, K. & Skeel, D. (2013). Bankruptcy law as a liquidity provider. The University of Chicago Law Review, 80 (4), 1557–1624.
Bajalan, S., MotaghianPour, R. (2021). Corporate Policies under Transitory and Permanent Shocks of Cash Flows: An Empirical Study of Cash Management. Financial Research Journal, 23(3), 351-376. (in Persian)
Beatty, A., Liao, S. & Weber, J. (2012). Evidence on the determinants and economic consequences of delegated monitoring. Journal of Accounting and Economics, 53 (3), 555–576.
Berk, J. B., Stanton, R. & Zechner, J. (2010). Human capital, bankruptcy and capital structure. Journal of Finance 65 (3), 891–926.
Bharath, S., Sunder, J. & Sunder, S. (2008). Accounting quality and debt contracting. The Accounting Review, 83 (1), 1–28.
Bolton, P. & Scharfstein, D. (1996). Optimal debt structure and the number of creditors. Journal of Political Economy, 104 (1), 1–25.
Bolu, G., Marfou, M., Ghahremani, A. (2020). The Effect of Accounting Information Quality on the Companies' Cost of Equity, Considering the Role of Information Symmetry and Comparability of Financial Statements. Empirical Studies in Financial Accounting, 17(68), 33-65. (in Persian)
Bris, A. & Welch, I. (2005). The optimal concentration of creditors. The Journal of Finance, 60(5), 2193-2212.
Byard D. & Wang, Y. (2016). The Impact of Public Disclosure on Information Asymmetry between Sophisticated and Unsophisticated Investors: Evidence from an Investor Social Media Network. 2017 CAPANA Conference Paper.
Chava, S., Kumar, P. & Warga, A. (2010). Managerial agency and bond covenants. Review of Financial Studies, 23 (3), 1120–1148.
Christensen, H. & Nikolaev, V. (2012). Capital versus performance covenants in debt contracts. Journal of Accounting Research, 50 (1), 75–116.
Colla, P., Ippolito, F. & Li, K. (2013). Debt specialization. The Journal of Finance, 68 (5), 2117–2141.
Davallou, M., Azizi, N. (2017). The Investigation of Information Risk Pricing; Evidence from Adjusted Probability of Informed Trading Measure. Financial Research Journal, 19(3), 415-438. (in Persian)
Denis, D.J. (2011). Financial flexibility and corporate liquidity. Journal of Corporate Finance, 17(3), 667-674.
Easley, D. & O’Hara, M. (2004). Information and the cost of capital. Journal of Finance 59 (4), 1553-1583.
Eskandar, H. & Bolori, A. (2021). The Moderating Effect of Equity Financing and Ownership Type on the Relationship between Dividend Policy and Financial Reporting Quality. Accounting and Auditing Review, 28(2), 206-225. (in Persian)
Eslamdoost, M., Ranjbar Navi, R. & Chenari, H. (2021). The Effect of External Corporate Governance Mechanism on the Stock Price Crash Risk with Emphasis on Financial Reporting Quality and Auditor Expertise in the Industry. Accounting and Auditing Review, 28(2), 226-247. (in Persian)
Hoang, H. C., Xiao, Q. & Akbar, S. (2019). Trade credit, firm profitability, and financial constraints: Evidence from listed SMEs in eastasia and the pacific. International Journal of Managerial Finance, 15(5), 744-770.
Ivashina, V., Iverson, B. & Smith, D. (2016). The ownership and trading of debt claims in Chapter 11 Restructurings. Journal of Financial Economics, 119 (2), 316–335.
Jensen, M. & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3 (4), 305–360.
Leland, H. E. (1998). Agency costs, risk management, and capital structure. Journal of Finance 53 (4), 1213–1243.
Lemmon, M.L., Zender, J.F. (2010). Debt capacity and tests of capital structure theories. Journal of Financial and Quantitative Analysis, 45(5), 1161-1187.
Li, N., Lou, Y., Otto, C.A. & Wittenberg-Moerman, R. (2021). Accounting Quality and Debt Concentration. The Accounting Review, 96 (1), 377–400.
Lou, Y. & Otto, C.A. (2020). Debt heterogeneity and covenants. Management Science, 66 (1), 70–92.
Milidonis, A. & Stathopoulos, K. (2014). Managerial incentives, risk aversion, and debt. Journal of Financial and Quantitative Analysis, 49 (2), 453–481.
Molanazari, M., Parsaei, M., Taghimollaee, S. (2021). The Effect of Debt Financing on Capital Investment Decisions Based on Mental Accounting Theory. Accounting and Auditing Review, 28(4), 713-738. (in Persian)
Nazari, H., BozhMehrani, M., Tahriri, A. (2019). Capital Structure and Stock Liquidity: Experimental Test of the Trade-off Theory versus the Peeking Order Theory. Financial Research Journal, 21(3), 472-492. (in Persian)
Phan, Q. T. (2018). Corporate debt and investment with financial constraints: Vietnamese listed
firms. Research in International Business and Finance, 46, 268- 280.
Piri, P., Ashtab, A., Rasouli, M. (2019). Review The Relationship between Cost of Debt and Surplus Return with Moderating effects of Investment Opportunities. Financial Accounting Knowledge, 6(2), 161-183. (in Persian)
Rahmani Noroozabad, S., Anvary Rostami, A., Khalili, K., Mohammadi, E. (2020). Corporate Financing Strategies in Normal and Crisis Conditions: Evidence from Tehran Stock Exchange. Journal of Asset Management and Financing, 8(2), 13-30. (in Persian)
Rajgopal, S. & Shevlin, T. (2002). Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics 33 (2), 145–171.
Rashidi, M. (2020). Dividend smoothing based on financial flexibility and capital structure adjustment. Journal of Accounting Knowledge, 40(1), 1-32. (in Persian)
Rashidi, M. (2021). Role of Contractual Obligations Violations on Risk Appetite and CEO Compensation Based on Credit Status. Financial Management Strategy, 9(2), 155-135. (in Persian)
Rauh, J. & A. Sufi. (2010). Capital structure and debt structure. Review of Financial Studies 23 (12), 4242–4280.
Tirole, J. (2006). The Theory of Corporate Finance. Princeton, NJ: Princeton University Press.
Sengupta, P. (1998). Corporate disclosure quality and cost of debt. The Accounting Review, 73 (4), 459- 474.
Tehrani, R. & Hesarzade, R. (2009). The effect of free cash flows and financial on over- investment and under – investment. Accounting Research. 1(3), 50-67. (in Persian)
Weiss, L. (1990). Priority of claims and ex post re-contracting in bankruptcy. Journal of Financial Economics, 27 (2), 285–314.