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Accruals quality and the cost of debt: the European evidence

Yasser Eliwa (School of Business and Economics, Loughborough University, Loughborough, UK and Faculty of Commerce, Cairo University, Cairo, Egypt)
Andros Gregoriou (Business School, University of Brighton, Brighton, UK)
Audrey Paterson (University of Aberdeen Business School, Aberdeen, UK)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 7 May 2019



This paper aims to investigate the empirical relationship between the cost of debt (CoD) and accruals quality (AQ) of European listed firms during the period of 2005 to 2014. Also, it aims to test the impact of the interrelationship between the financial crisis (2008-2009) and AQ on CoD. Finally, we decompose AQ into two components; the innate (InnateAQ) and discretionary components (DiscAQ); and test their relationships with CoD.


To empirically examine the relationship between AQ and CoD, a sample including 15 member states of the EU is constructed. AQ proxy is based on the McNichols (2002) modification of Dechow and Dichev (2002) model. A univariate analysis and a multivariate analysis are conducted to examine the relationship between AQ and CoD after controlling for firm characteristics and institutional variables.


We find a significant negative association between AQ and CoD in a vast proportion of the 15 countries under review. Also, the results indicate that during the crisis period, creditors pay relatively more attention to the quality of accounting information than during the pre-crisis period when they determine CoD of firms. Moreover, we report a link between the magnitude of this relationship and national characteristics and provide evidence of the significant effects of national characteristics and market forces on CoD. Finally, we find that InnateAQ drives the relationship with CoD.

Practical implications

This paper provides up-to-date evidence on the economic consequences of AQ and IFRS in the capital market. The results should, therefore, be of interest to managers, creditors, regulators and standard-setters.


To the best of the authors’ knowledge, this is the first paper to investigate the effects of AQ on CoD for European listed firms. Also, it examines the impact of financial crisis on the association between AQ and CoD.



Eliwa, Y., Gregoriou, A. and Paterson, A. (2019), "Accruals quality and the cost of debt: the European evidence", International Journal of Accounting & Information Management, Vol. 27 No. 2, pp. 333-351.



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