The Impact of Business Strategies (Defensive and Aggressive) on Cost of Capital: The Mediating Role of Accounting Information Quality

This study aims to examine the medating role of accounting information quality on the relationship between business strategies and cost of capital. The necessity of this research arises from the importance of understanding the relationship between business strategies and financial outcomes, particularly in emerging markets where information challenges and market characteristics play a critical role in financial decision-making.

Methods: The research utilizes data from 141 publicly listed companies on the Tehran Stock Exchange over the period 2019 to 2023. Panel data analysis and multivariate linear regression methods were employed to test the hypotheses. To further ensure the significance of the mediating role of accounting information quality, a bootstrap test was conducted as a supplementary step using SPSS software.

Findings: The results show that companies with a defensive (conservative) strategy, compared to aggressive companies, have higher accounting information quality. On the other hand, although business strategy does not directly have a significant impact on the cost of capital, it was found that accounting information quality plays a significant mediating role in the effect of business strategies on the cost of capital. Specifically, defensive (aggressive) strategies reduce (increase) the cost of capital through an increase (decrease) in accounting information quality.

Conclusion: Defensive strategies, characterized by optimal resource management and greater financial transparency, lead to improved accounting information quality and reduced cost of capital. In contrast, firms pursuing aggressive strategies face higher risks and uncertainties, leading to higher capital costs.