Publication Type

Journal Article

Version

submittedVersion

Publication Date

1-2021

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.

Keywords

accounting quality, debt concentration, creditor coordination, bankruptcy, distress

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Accounting Review

Volume

96

Issue

1

First Page

377

Last Page

400

ISSN

0001-4826

Identifier

10.2308/tar-2017-0250

Publisher

American Accounting Association

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2308/tar-2017-0250

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