Strategic deviation and the cost of debt financing

Ye Z., Shahab Y., Riaz Y., Ntim C. G.

ECONOMIC MODELLING, vol.125, 2023 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 125
  • Publication Date: 2023
  • Doi Number: 10.1016/j.econmod.2023.106371
  • Journal Name: ECONOMIC MODELLING
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit, Public Affairs Index
  • Azerbaijan State University of Economics (UNEC) Affiliated: No

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.