Property Crime, Earnings Variability, and the Cost of Capital
Colorado State University, Fort Collins - Department of Accounting
Dan S. Dhaliwal
University of Arizona - Department of Accounting
Douglas J. Fairhurst
Washington State University
University of Tennessee
June 27, 2016
Journal of Corporate Finance, Forthcoming
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 as well as lower quality analysts’ earnings forecasts. Firms located in states with higher property crime rates also have a higher cost of equity and debt capital. These results are robust to accounting for econometric and endogeneity concerns in various ways. 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: 88
Keywords: Earnings variability, Cost of equity, Cost of debt, Property crime, Theft
JEL Classification: G30, M41
Date posted: December 22, 2013 ; Last revised: August 4, 2016
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