Research On The Impact Of Annual Report Inquiry Regulation On Debt Financing Cost

The Party clearly pointed out in the report of the 20 th National Congress that high-quality development is the primary task of comprehensively building a modern socialist country.In China,the capital market has always had a close relationship with the development of the national economy,and promoting the sustainable,healthy and stable development of China’s capital market economy is clearly an inevitable requirement for implementing high-quality development.In recent years,China has been insisting on the development concept of "deregulation and strengthening supervision" in the capital market,and the supervision of inquiry letters implemented by the stock exchange has well implemented this concept,which has changed the way the stock exchange examines the information disclosure of listed companies from beforehand to afterwards.In recent years,the number of inquiry letters issued by the two major stock exchanges in China has been increasing,among which the inquiry letters issued are mainly concern letters,regulatory inquiry letters,annual report inquiry letters,etc.Among them,the annual report inquiry letters issued to listed companies mainly ask about the authenticity and reliability of their annual reports.Debt financing is one of the most widely used external financing methods for listed companies.The external creditors sign the loan contract with the borrowing company based on the comprehensive assessment of the financial information disclosed by the borrowing company itself as well as the relevant information such as the operating condition of the company,so as to sign the debt contract,which affects the cost of debt financing.Therefore,the creditor attaches great importance to the authenticity and reliability of the information disclosure of the borrowing company.When the stock exchange issues the inquiry letter of the annual report to the borrowing company,it can be regarded as sending a risk signal to the external creditor.At this time,the creditor is bound to quickly catch the signal.Therefore,this paper tries to establish an effective link between the regulation of annual report inquiry letters and the cost of debt financing of companies,and to find out whether the regulation of annual report inquiry letters has a significant impact on the cost of debt financing in the study.At the same time,internal control system is an important internal governance initiative of listed companies,which affects all aspects of daily operation of listed companies,and to a certain extent can reflect the operational risk of listed companies and the authenticity and reliability of their information disclosure.Therefore,this paper further introduces the internal control system to explore whether it can play an effective role in the impact of annual report inquiry regulation on the cost of debt financing.This paper constructs an empirical model to test the effect of annual report inquiry letter regulation on listed companies’ debt financing cost by regression,using Chinese A-share listed companies in Shanghai and Shenzhen from 2015-2021 as the research sample.It is found that the cost of debt financing increases significantly for companies that receive annual report inquiry letters,and this effect is more significant for non-state owned enterprises,high gearing enterprises,low audit quality enterprises,and enterprises in a period of accommodative monetary policy.It is also found that internal control,an important internal governance measure for listed companies,and high-quality internal control can negatively moderate the relationship between annual report inquiry letter regulation and debt financing cost.Based on the above findings,this paper proposes the following suggestions from the three levels of regulators,listed companies and creditors: stock exchanges should continue to improve the regulatory system of inquiry letters to enhance the deterrent effect of the letters;listed companies should not only improve the quality of external information disclosure,but also improve the internal control system to reduce the possibility of being questioned;creditors should improve their risk identification ability and be able to identify the risks from the annual report inquiry letters received by listed companies.Creditors should improve their risk identification ability and be able to identify the potential risks of the company from the annual report inquiry letters received by listed companies.