Effect of Mandatory IFRS Adoption on Cost of Debt in Turkey

The ultimate aim of financial reporting is the communication between companies and their stakeholders. To better serve this ultimate aim, International Accounting Standards Board (IASB) required all European Union listed companies to adopt International Financial Reporting Standards (IFRS) starting from January 1, 2005. Some of other emerging countries like Turkey also complied with this requirement. In this paper, whether mandatory adoption of IFRS in 2005 caused a decrease in average cost of debt of Turkish manufacturing firms or not is tested. A cross-section fixed effect panel model was employed for a data set of 138 companies and 646 firm-year observations between years 2002 and 2008. Results show that firms in the sample have a significantly lower cost of debt after adoption year. Moreover, while; firm size, current ratio, GDP growth and interest rates have a positive association with the cost of debt, tangibility and interest coverage have a negative effect on the cost of debt.