Organizational Inertia and Cost of Equity Capital

Document Type : Research Paper

Authors

1 Department of Accounting, Nour Branch, Islamic Azad University, Nour, Iran

2 Department of Accounting, Bandargaz Branch, Islamic Azad University, Bandargaz, Iran

3 Department of Accounting, University of Guilan, Rasht, Iran

Abstract

Organizational inertia as a defensive mechanism has pervasive effects on the functional aspects of organizations, including financial functions. One of these financial aspects affected by inertia is the cost of equity capital. Hence, This article aims to contribute to the accounting knowledge literature by presenting the framework of organizational inertia (OI) and investigating the effect of the cost of equity capital (COE) on it. This article uses meta-synthesis, the Delphi process, and, finally, questionnaire design to measure organizational inertia. The mentioned questionnaire was sent to the managers of the sample companies, and finally, 138 questionnaires were completed and returned and included in the statistical analysis. To measure the cost of equity capital, we use three proxies, including the O’Hanlon and Steele (2000) Model (OSM), CAPM, and Industry-Adjusted Earnings-to-Stock Price Ratio (IndEP). The results show that organizational inertia has a positive and significant effect on the cost of equity capital. The research results have confirmed that organizational inertia has a positive and significant effect on the cost of equity capital. This means that the increase in structural resistance causes the company's financing costs to increase, and the company faces more challenges in obtaining resources.

Keywords

Main Subjects

References

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Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 17, Issue 3
July 2024
Pages 939-952

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