The mediating effect of financial reporting quality on corporate governance effectiveness and cost of debt

Abstract

The purpose of this study is to examine the mediating effect of financial reporting quality on corporate governance effectiveness and cost of debt. This study uses a panel dataset for 68 companies listed in Oman from 2012 to 2018. The empirical results that were obtained by applying a four-step approach show that companies with more effective corporate governance and higher quality of financial reporting obtain the optimum cost of debt. The study also reveals that financial reporting quality partially mediates the relationship between corporate governance effectiveness and cost of debt. This study among a limited number of studies provides a comprehensive analysis of the association between corporate governance effectiveness, financial reporting quality and cost of debt in the setting of Oman. The study findings have potential implications for all users of financial reports because they indicate that financial reporting quality has a central role in evaluating firm performance and in eliminating information asymmetry, and therefore can reduce the cost of financing.