Strategic deviation and the cost of debt financing

Zhiwei Ye; Yasir Shahab; Yasir Riaz; Collins G. Ntim

doi:10.1016/j.econmod.2023.106371

Strategic deviation and the cost of debt financing

Zhiwei Ye
, Yasir Shahab
, Yasir Riaz
, Collins G. Ntim

Research output: Contribution to journal › Article › peer-review

19 Citations (Scopus)

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.

Original language	English
Article number	106371
Pages (from-to)	1-11
Number of pages	11
Journal	Economic Modelling
Volume	125
Early online date	18 May 2023
DOIs	https://doi.org/10.1016/j.econmod.2023.106371
Publication status	Published (in print/issue) - 1 Aug 2023

Bibliographical note

Publisher Copyright:
© 2023 Elsevier B.V.

Funding

This research was funded by the “Funds for High-Level Talents of Xijing University (2019), Grant/Award Number: XJ19B02.

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth
SDG 9 Industry, Innovation, and Infrastructure

Keywords

China
Firm's risk
Strategic deviation
The cost of debt
Upper echelons attributes

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10.1016/j.econmod.2023.106371Licence: CC BY-NC-ND

Cite this

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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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KW - Firm's risk

KW - Strategic deviation

KW - The cost of debt

KW - Upper echelons attributes

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Strategic deviation and the cost of debt financing

Abstract

Bibliographical note

Funding

UN SDGs

Keywords

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