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Abstract
Abstract. In 2025, forecasts indicate that Asian companies, especially from China and India, will dominate the IPO market. Understanding global capital cost drivers is essential, particularly as energy sector costs increase. Research highlights that superior accounting information can narrow the investor-management gap, reducing equity and debt. This study investigates the impact of Other Comprehensive Income (OCI) volatility, Research and Development (R&D) investment, and earnings management on cost of capital, considering the potential moderating effect of agency costs. The analysis includes 1,565 observations across 313 firms from 2018 to 2022, focusing on the energy sector in China, India, the United States, and Indonesia. The study uses panel data regression to examine the relationships between OCI volatility, R&D investment, earnings management, and cost of capital, focusing on agency costs’ moderating role. Initial findings reveal that earnings management significantly and negatively influences cost of capital. Further, R&D investments in China and Indonesia show a negative and significant impact on cost of capital, contrary to positive and significant findings in India and the United States. Companies are advised to sustain efficient, future-oriented project selections.
Keywords: OCI Volatility, R&D investment, earnings management, agency cost, cost of capital
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This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Copyright @2017. This is an open-access article distributed under the terms of the Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License (http://creativecommons.org/licenses/by-nc-sa/4.0/) which permits unrestricted non-commercial used, distribution and reproduction in any medium
References
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- Andreas, Kreß., Brigitte, Eierle., Ioannis, Tsalavoutas. (2019). Development costs capitalization and debt financing. Journal of Business Finance & Accounting, 46:636-685. doi: 10.1111/JBFA.12370
- Ball, R. (2001). Infrastructure requirements for an economically efficient system of public financial reporting and disclosure. Brookings — Wharton Papers on Financial Services, 2001(1), 127–169. https://doi.org/10.1353/pfs.2001.0002
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- Emrick, C., M. Wasden, and R. Young. 2006. Moody’s approach to other comprehensive income items when calculating effective leverage for finance companies. Working paper, https://doi.org/10.2139/ssrn.959014.
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- KPMG (2020). Cost of Capital Study 2020
- https://home.kpmg/de/en/home/insights/2020/10/cost-of-capital-study-2020.html
- Lee, Y. J., K. R. Petroni, and M. Shen. 2006. Cherry picking, disclosure quality, and comprehensive income reporting choices: The case of property-liability insurers. Contemporary Accounting Research 23 (3): 655–92
- Kim, J. H., Lee, S. H., & Keun Yoo, Y. (2018). Real earnings management and the cost of debt capital: International evidence. Asia-Pacific Journal
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- Mazzi, F., Slack, R., Tsalavoutas, I., & Tsoligkas, F. (2018). Country level corruption and accounting choice: Research & development capitalisation under IFRS, University of Glasgow, working paper, Retrieved from https://papers.ssrn.com/
- sol3|papers.cfm?abstract_id=2979300
- Sami, Gharbi., Sami, Gharbi., Jean-Michel, Sahut., Frédéric, Teulon. (2014). R&D investments and high-tech firms' stock return volatility. Technological Forecasting and Social Change, 88(1):306-312. doi: 10.1016/J.TECHFORE.2013.10.006
References
Al Mamun, M.; Sohag, K.; Shahbaz, M.; Hammoudeh, S. Financial markets, innovations and cleaner energy production in OECD countries. Energy Econ. 2018, 72, 236–254)
Andreas, Kreß., Brigitte, Eierle., Ioannis, Tsalavoutas. (2019). Development costs capitalization and debt financing. Journal of Business Finance & Accounting, 46:636-685. doi: 10.1111/JBFA.12370
Ball, R. (2001). Infrastructure requirements for an economically efficient system of public financial reporting and disclosure. Brookings — Wharton Papers on Financial Services, 2001(1), 127–169. https://doi.org/10.1353/pfs.2001.0002
Bao, M. X., Billett, M. T., Smith, D. B., & Unlu, E. (2019). Does Other Comprehensive Income Volatility Influence Credit Risk and the Cost of Debt? Contemporary Accounting Research. doi:10.1111/1911-3846.12548
Black, D. E., and S. Cahan. 2016. Other comprehensive income: A review and directions for future research. Accounting and Finance 56 (1): 9–45.
Dhaliwal, D., K. Subramanyam, and R. Trezevant. 1999. Is comprehensive income superior to net income as a measure of firm performance? Journal of Accounting and Economics 26 (1): 43–67.
Dirk E Black (2013). Return Volatility and Other Comprehensive Income Components
Dechow, P. M., Ge, W., Larson, C. R., & SLOAN, R. G. (2011). Predicting Material Accounting Misstatements*. Contemporary Accounting Research, 28(1), 17–82. doi:10.1111/j.1911-3846.2010.01041.x
Emrick, C., M. Wasden, and R. Young. 2006. Moody’s approach to other comprehensive income items when calculating effective leverage for finance companies. Working paper, https://doi.org/10.2139/ssrn.959014.
Franc-Dąbrowska, Justyna, Magdalena Mądra-Sawicka, and Anna Milewska. (2021). "Energy Sector Risk and Cost
of Capital Assessment—Companies and Investors Perspective" Energies 14, no. 6: 1613. https://doi.org/10.3390/en14061613)
Gitman L., J. (2016) Principles of Managerial Finance. 12th ed. Pearson Education
Jones, J. (1991). Earnings management during import relief investigation. Journal of Accounting Research, 29, 193 228. https://doi.org/ 10.2307/2491047
Kreß, A., Eierle, B., & Tsalavoutas, I. (2019). Development costs capitalization and debt financing. Journal of Business Finance & Accounting. doi:10.1111/jbfa.12370
KPMG (2020). Cost of Capital Study 2020
https://home.kpmg/de/en/home/insights/2020/10/cost-of-capital-study-2020.html
Lee, Y. J., K. R. Petroni, and M. Shen. 2006. Cherry picking, disclosure quality, and comprehensive income reporting choices: The case of property-liability insurers. Contemporary Accounting Research 23 (3): 655–92
Kim, J. H., Lee, S. H., & Keun Yoo, Y. (2018). Real earnings management and the cost of debt capital: International evidence. Asia-Pacific Journal
of Accounting & Economics, 1-22.
Mazzi, F., Slack, R., Tsalavoutas, I., & Tsoligkas, F. (2018). Country level corruption and accounting choice: Research & development capitalisation under IFRS, University of Glasgow, working paper, Retrieved from https://papers.ssrn.com/
sol3|papers.cfm?abstract_id=2979300
Sami, Gharbi., Sami, Gharbi., Jean-Michel, Sahut., Frédéric, Teulon. (2014). R&D investments and high-tech firms' stock return volatility. Technological Forecasting and Social Change, 88(1):306-312. doi: 10.1016/J.TECHFORE.2013.10.006