Property Crime, Earnings Variability, and the Cost of Capital
University of Arizona
Dan S. Dhaliwal
University of Arizona - Department of Accounting
Douglas J. Fairhurst
Washington State University
Matthew A. Serfling
University of Tennessee- Department of Finance
May 27, 2015
We show that firms located in states where property crime is more prevalent have more uncertain earnings and higher financing costs. Specifically, firms located in states with higher property crime rates have more volatile and less persistent earnings, and for these firms, analysts’ earnings forecasts are less predictable. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to controlling for the presence of other local economic conditions. Overall, our results suggest that a potentially large and overlooked cost of crime is a higher cost of capital.
Number of Pages in PDF File: 60
Keywords: Earnings variability, Cost of equity, Cost of debt, Property crime, Theft
JEL Classification: G12, G30, M41
Date posted: December 22, 2013 ; Last revised: May 28, 2015
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