International Diversification and Cost of Debt: Evidence from Korean Debt Market

Abstract

In this paper, we examine how international diversification affects the cost of debt capital in Korean capital market. In addition, we investigate whether the impact of international diversification on cost of debt capital are affected by 1) analyst coverage as a proxy for information environment and 2) Big 4 accounting firm as a proxy for audit quality. Our empirical results show that international diversification is negatively associated with cost of debt. We also find that the impact of international diversification on cost of debt is working only for firms with analyst coverage and only for firms audited by Big 4 audit firms, suggesting that good information environment and higher audit quality are key factors to allow firms to obtain positive effects of international diversification in Korean debt market.

Keywords: International diversification, Cost of debt, Analyst following, Audit quality

DOI: 10.7176/EJBM/11-33-03

Publication date: November 30^th 2019