The effect of reliability and timeliness of financial reporting on speed Leverage ratio adjustment: A generalized torque approach

Document Type : Research Paper

Authors

1 Master of Accounting, University of Hamadan

2 Associate Professor, Department of Accounting, Bu Ali University of Hamadan

10.22099/jaa.2022.43690.2241

Abstract

. Introduction
Based on the theory of dynamic parallelism, companies always seek to bring their actual leverage ratio closer to the optimal ratio. But it should be noted that moving towards the optimal ratio of leverage has costs and benefits, and companies adjust their capital structure when the benefits of this work are greater than its costs. In fact, firms adjust capital structure when the benefits of the action are greater than the associated costs, taking into account the costs of deviation from the target leverage and the costs of adjustment towards the target. Factors affecting the speed of adjusting the leverage ratio (such as surplus and deficit of cash funds, quality of institutional factors of companies, company size, company growth, competition in the product market, the effect of commercial credit, the quality of disclosure and the quality of accruals, the entropy effect of financial statements, asymmetry Earnings management information, inflation rate risk and company-specific risk, financial condition and industry characteristics, dividend policies and financing strategies) have been measured. Some researchers believe that the components of disclosure quality (including the timeliness and reliability of financial reports) are one of the factors affecting the adjustment speed, which have not been paid attention to in previous researches. Therefore, it is necessary to investigate the effect of reliability and timeliness of financial reports on the speed of adjustment of financial leverage.
 

Research Questions or hypothesis:

According to the contents stated in the theoretical foundations and background, the assumptions of the research are as follows:
Hypothesis 1: the reliability of financial reports increases the speed of adjusting the leverage ratio
Hypothesis 2: Timely presentation of financial reports increases the speed of leverage ratio adjustment
 

Methods

This research is retrospective in terms of applied results, quantitative in terms of execution process, and retrospective in terms of time. The data collection was done by library method from Central Bank website, Rahvard Navin database and Kodal website. Dynamic combined data approach with generalized moments estimator has been used to estimate the research models. In addition, to check the reliability of the results, from the Sargan test and the Arellano-Bond serial autocorrelation test; Used. The final analysis of the data has also been done with the help of Eviuse software. The statistical population of the research includes all the companies present in the Tehran Stock Exchange during the period of 1384-1396, after applying the following restrictions, 167 companies (2056 years of company) from the total number of companies accepted in the Tehran Stock Exchange remained available for the study. became
 

Result

In this research, it is stated that companies always seek to bring their actual leverage ratio closer to the optimal ratio. The results show that with the increase in the timeliness of financial reports, the speed of adjusting the leverage ratio also increases significantly. However, the results indicate that the increase in reliability does not have a significant effect on the speed of adjustment of the leverage ratio. In fact, increasing the timeliness of providing financial reports leads to a decrease in the cost of financing and an increase in the speed of adjustment of the leverage ratio. But the reduction of information asymmetry does not lead to a reduction in the cost of financing and an increase in the speed of leverage adjustment
 

Discussion and Conclusion

Discussion and Conclusion:In the equilibrium theory, it is believed that companies have an optimal leverage ratio (target) in which the leverage ratio, the cost of capital reaches its minimum value. In this research, it is stated that companies are always looking for it rather than the actual leverage ratio. Bring yourself closer to the optimal ratio. In addition, it is believed that the speed of movement of the actual leverage ratio of the companies towards the target leverage ratio (the speed of adjustment of the leverage ratio) depends on various factors. One of the factors that reduce the speed of adjusting the leverage ratio is the information asymmetry between investors' business units. In this situation, increasing the quality of financial reporting disclosure will reduce information asymmetry and increase the speed of capital structure adjustment. In this research, the effect of reliability And at the same time, financial information on the speed of adjustment of leverage ratios has been examined.
 
 
 

Keywords

References

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History

  • Receive Date: 04 May 2022
  • Revise Date: 26 September 2022
  • Accept Date: 26 September 2022

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