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korean management review - Vol. 53 , No. 1

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[ Article ]
korean management review - Vol. 50, No. 2, pp. 557-582
Abbreviation: kmr
ISSN: 1226-1874 (Print)
Print publication date 30 Apr 2021
Received 17 Oct 2020 Revised 25 Jan 2021 Accepted 16 Feb 2021
DOI: https://doi.org/10.17287/kmr.2021.50.2.557
The Effect of Strategic Deviance on the Cost of Debt
Sangmi Kim ; Su-Young Choi
(First Author) Assistant Professor, Department of Taxation and Accounting, Dongduk Women‘s University (smkim@dongduk.ac.kr)
(Corresponding Author) Lecturer, College of Business Administration, Inha University (chsy0808@hanmail.net)
전략적 일탈이 타인자본비용에 미치는 영향

Copyright 2011 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This study investigates the effect of strategic deviance of firms on the cost of debt. Strategic deviance as independent variable is defined the difference between the strategies of firm and the overall tendency of strategies in the industry. Cost of debt as dependent variable is defined as credit ratings provided by credit rating agency or borrowing rates derived from financial statements. Using the firms listed on the Korea Stock Exchange for the period 2000 to 2018, this study finds negative association between strategic deviance and cost of debt. This result indicates that the capital market assesses that the negative impact of strategic deviance on the reliability and relevance of financial information increases information risk. In addition, the negative association between strategic deviance and cost of debt is lower when a managerial ability is high. This study increases the understanding of the interaction between business strategy and information risk perceived by capital market. In addition, a firm with a high degree of strategic deviance presents a practical implication that it is necessary to consider a way to signal information about the firm's current and future prospects to outside stakeholders in order to respond to negative assessments.


Keywords: Strategic Deviance, Cost of Debt, Credit Ratings, Interest expenses to liabilities, Managerial Ability

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∙The author Sangmi Kim is an assistant professor at Department of Accounting and Taxation, Dongduk Women’s University. She received Ph. D in business administration from Ewha Womans University. Her recent research interests lie in audit quality, auditor selection, corporate strategy and integrating accounting.

∙The author Su-Young Choi is an lecturer at College of Business administration, Inha University. She received Ph. D in business administration from Inha University. Her recent research interests lie in abnormal investment, stock price crash risk, conservatism, and analysts’ forecast properties.