Accounting Quality and Debt Concentration

Ningzhong Li, Yun Lou, Clemens A Otto, and Regina Wittenberg-Moerman (2020) Accounting Quality and Debt Concentration. The Accounting Review. DOI/10.2308/tar-2017-0250, Forthcoming

Singapore Management University School of Accountancy Research Paper No. 2020-113

52 Pages Posted: 2 Dec 2014 Last revised: 13 Jul 2020

See all articles by Ningzhong Li

Ningzhong Li

University of Texas at Dallas

Yun Lou

Singapore Management University - School of Accountancy

Clemens A. Otto

Singapore Management University - Lee Kong Chian School of Business

Regina Wittenberg Moerman

University of Southern California

Date Written: March 21, 2020

Abstract

We examine the relation between accounting quality and debt concentration in corporate capital structures (i.e., firms’ tendency to rely predominantly on only a few types of debt). Motivated by theoretical and empirical research that supports a strong link between debt concentration and creditors’ coordination costs and the importance of accounting quality in reducing these costs, we hypothesize that firms with higher accounting quality have less concentrated debt structures. Measuring accounting quality with a comprehensive index based on the occurrence of material internal control weaknesses, accounting restatements, SEC AAERs, and firms’ reliance on small auditors, we find that higher accounting quality is indeed associated with less concentrated debt structures. This relation is stronger for firms with higher default risk, as the probability that creditors need to coordinate is higher, and for firms with lower liquidation values, as creditor coordination to avoid liquidation is more important.

Suggested Citation

Li, Ningzhong and Lou, Yun and Otto, Clemens A. and Wittenberg Moerman, Regina, Accounting Quality and Debt Concentration (March 21, 2020). Ningzhong Li, Yun Lou, Clemens A Otto, and Regina Wittenberg-Moerman (2020) Accounting Quality and Debt Concentration. The Accounting Review. DOI/10.2308/tar-2017-0250, Forthcoming , Singapore Management University School of Accountancy Research Paper No. 2020-113, Available at SSRN: https://ssrn.com/abstract=2532386 or http://dx.doi.org/10.2139/ssrn.2532386

Ningzhong Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Yun Lou

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Clemens A. Otto

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Regina Wittenberg Moerman

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
932
Abstract Views
4,506
rank
31,078
PlumX Metrics