Abstract

http://ssrn.com/abstract=1156407
 
 

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Disclosure Quality, Cost of Capital, and Investors' Welfare


Pingyang Gao


University of Chicago - Booth School of Business

May 25, 2009

Chicago GSB Research Paper No. 08-06
Accounting Review, Forthcoming

Abstract:     
One might expect that disclosure quality improves investor welfare by reducing cost of capital. This study shows that the argument is valid only in limited circumstances. Based on a production economy with perfect competition among investors, the analysis demonstrates three points. First, cost of capital could increase with disclosure quality when new investment is sufficiently elastic. Second, there are plausible conditions under which disclosure quality reduces the welfare of current and/or new investors. Finally, cost of capital could move in opposition to the welfare of either current or new investors as disclosure quality changes.

Number of Pages in PDF File: 46

Keywords: Cost of Capital, Disclosure, Welfare, Real Effect

JEL Classification: G12, G34, G38, M41, M45

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Date posted: July 7, 2008 ; Last revised: September 10, 2009

Suggested Citation

Gao, Pingyang, Disclosure Quality, Cost of Capital, and Investors' Welfare (May 25, 2009). Chicago GSB Research Paper No. 08-06 ; Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1156407 or http://dx.doi.org/10.2139/ssrn.1156407

Contact Information

Pingyang Gao (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
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