Investigating the Mediating Role of Agency Cost on the Relationship between Voluntary Disclosure and Cost of Capital Considering Levels of Earnings Quality

The prpose of this research is to investigate the direct and indirect effects of voluntary information disclosure on the cost of capital with the mediating role of agency costs in different levels of profit quality.

In this research, a statistical sample of 173  member companies of the Tehran Stock Exchange was selected during the period under review in 2013-2018. To estimate the research model based on structural equation modeling, the method of factor analysis and principal components has been used, which provides the possibility of examining direct and indirect relationships between variables. In the present study, companies were divided into two groups of companies with high and low earnings quality based on the level of earnings quality based on the common factor.

The findings show that there is a positive and significant relationship between agency cost and capital cost. In companies with high earnings quality, voluntary disclosure directly and indirectly has a negative and significant impact on the cost of capital. While in companies with low earnings quality, the effect of voluntary disclosure on the cost of capital is not significant, but it has a negative effect on the cost of capital indirectly due to agency cost. The total effect of voluntary disclosure, which is obtained from the sum of the direct and indirect effect, is negative and significant on the cost of capital.

Earnings quality plays an effective role in moderating the relationship between exposure and cost of capital. Also, the higher the perdiction accuracy, the higher the voluntary information is disclosed. Therefore, the increase in voluntary disclosure of information reduces agency costs and cost of capital.

Contribution:

In addition to developing the theoretical foundations of previous reseach provide a new platform for future research and can play an effective role in the field of rational investment decision making by managers and investors.