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Cost of Capital and Earnings TransparencyMary E. BarthStanford University - Graduate School of Business Yaniv KonchitchkiUniversity of California, Berkeley - Haas School of Business Wayne R. LandsmanUniversity of North Carolina (UNC) at Chapel Hill - Accounting Area January 2013 Journal of Accounting & Economics (JAE), Forthcoming Stanford University Graduate School of Business Research Paper No. 2015 Rock Center for Corporate Governance at Stanford University Working Paper No. 48 Abstract: We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.
Number of Pages in PDF File: 58 Keywords: accounting procedures, asset pricing, cost of capital, financial statements, risk JEL Classification: M43, M41 Accepted Paper SeriesDate posted: February 25, 2009 ; Last revised: May 14, 2013Suggested CitationContact Information
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