Corporate Pyramids,Conservatism and Cost of Debt: Evidence From Taiwan |
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Authors: | Ann L-C Chan Audrey Wen-hsin Hsu |
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Institution: | 1. Department of Accounting, National Chengchi University, Taipei 11605, Taiwan;2. Department of Accounting, National Taiwan University, No. 1, Section 4, Roosevelt Road, Taipei 106, Taiwan |
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Abstract: | This study investigates the extent to which the span of corporate pyramids (as measured by the number of ownership layers) is associated with higher agency costs of debt, and whether conservatism can moderate the agency cost. Consistent with corporate pyramids generating higher agency costs and information asymmetries between corporate insiders and outside creditors, we find a positive association between the number of investment layers and cost of debt. However, we also find that multi-layered firms mitigate organizational opaqueness through increased financial reporting conservatism, which results in lower cost of debt capital. These findings provide new insights into the relationship between organizational structure and financial reporting quality. |
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Keywords: | Investment layers Asymmetrically timely loss recognition Cost of debt |
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