The impact of financing policy on the cost of debt

  • Received October 1, 2021;
    Accepted November 9, 2021;
    Published November 11, 2021
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.18(4).2021.16
  • Article Info
    Volume 18 2021, Issue #4, pp. 177-189
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The cost of debt is a key element to define the amount of the regular interest payments of a company and its business value. It is used for indicators that warn of the economic crisis, which is relevant for the countries where most companies are financially dependent on liabilities. The formalized criteria for the types of financing policy, improved procedure for the cost of debt calculation make it possible to reveal policy with the capital structure that minimizes the cost of debt.
The study is based on Ukrainian food processing companies for the period 2013–2020. The studied database was distributed by the types of financing policies: 22% of the cases have a conservative policy, 15% – moderate, 26% – aggressive, 37% – super-aggressive.
The results show that the highest weighted cost of debt (24.1%) belongs to the conservative policy, which replaces negative equity by the expensive long-term debts, as well as super-aggressive policy (20.8%) with trade payable that is near half of the capital, and long days payable outstanding. A company can reduce the cost of debt relying on non-interest-bearing liabilities and trade payable if its days payable outstanding are kept at the industrial level or below. Moderate and conservative financing policies, which are based on equity and avoid debts, provide the lowest weighted cost of debt: 2.1% and 1.2%.
Thus, choosing the desired type of financing policy for the company, it is possible to form a capital structure that will reduce the cost of debt.

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    • Table 1. Variants of the financing policy implementation
    • Table 2. The cost of the interest-bearing liabilities of Lagoda
    • Table 3. Lost discount of Lagoda
    • Table 4. Potential penalties of Lagoda
    • Table 5. Constants for determining the cost of trade payable in the dairy industry
    • Table 6. Weighted cost of debt of Lagoda
    • Conceptualization
      Tetiana Konieva
    • Data curation
      Tetiana Konieva
    • Formal Analysis
      Tetiana Konieva
    • Funding acquisition
      Tetiana Konieva
    • Investigation
      Tetiana Konieva
    • Methodology
      Tetiana Konieva
    • Project administration
      Tetiana Konieva
    • Resources
      Tetiana Konieva
    • Supervision
      Tetiana Konieva
    • Software
      Tetiana Konieva
    • Validation
      Tetiana Konieva
    • Visualization
      Tetiana Konieva
    • Writing – original draft
      Tetiana Konieva
    • Writing – review & editing
      Tetiana Konieva