Financial Reporting Quality and Cost of Capital of Listed Banks in Iraq

Abstract

This study examined the impact of financial reporting quality on the cost of capital among listed Iraqi banks, recognizing the cost of capital as a vital determinant of financial stability, investment decisions, and economic growth. The research focused on how faithful representation, timeliness, and value relevance influence financing costs. The investigation adopted ex-post facto research methodology as the utilized data were pre-existing and not intended for alteration. The study encompassed a population of 43 listed banks in Iraq. The sample size was 43 banks, determined through census sampling techniques. The research spanned from 2015 to 2024. Panel regression analysis was conducted and the FGLS regression model was used to examine the relationship between the variables studied. The findings revealed that both faithful representation and timeliness have a positive and statistically significant effect on the cost of capital, suggesting that greater financial transparency may expose underlying risks, leading investors to demand higher returns. However, value relevance had a negative but statistically insignificant effect, indicating that although decision-useful information could lower capital costs, this relationship lacks strong evidence in the Iraqi context. The results showed how different dimensions of financial reporting quality affect investors’ perceptions and capital costs in a developing financial market. This study concludes that faithful representation and timeliness significantly increase the cost of capital, potentially due to enhanced risk awareness among investors in a volatile environment. In line with the findings of this study, this study recommends that regulators and financial institutions should invest in programs that improve investors’ understanding of financial statements to foster better use of disclosed information in pricing decisions.