Abstract

http://ssrn.com/abstract=2370644
 


 



Property Crime, Earnings Variability, and the Cost of Capital


James Brushwood


University of Arizona

Dan S. Dhaliwal


University of Arizona - Department of Accounting

Douglas J. Fairhurst


Washington State University

Matthew A. Serfling


University of Arizona - Department of Finance

March 18, 2015


Abstract:     
We examine whether firms located in areas where crime is more prevalent have more uncertain earnings and higher financing costs. We document that firms headquartered in states with higher property crime rates have more volatile and less persistent earnings, and for these firms, analysts’ earnings forecasts are less accurate, more dispersed among analysts, and display greater revision volatility. Firms headquartered in states with higher property crime rates also have a higher cost of equity and debt capital. This relation is robust to accounting for econometric concerns. Further, when firms relocate their headquarters, we find a positive relation between changes in property crime rates and changes in their cost of equity. Overall, our paper shows that the risk of theft-related losses can have an important effect on firms’ earnings variability and cost of capital and that a potentially large and overlooked cost of crime is higher financing costs.

Number of Pages in PDF File: 59

Keywords: Earnings variability, Cost of equity, Cost of debt, Property crime, Theft

JEL Classification: G12, G30, M41


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Date posted: December 22, 2013 ; Last revised: March 20, 2015

Suggested Citation

Brushwood, James and Dhaliwal, Dan S. and Fairhurst, Douglas J. and Serfling, Matthew A., Property Crime, Earnings Variability, and the Cost of Capital (March 18, 2015). Available at SSRN: http://ssrn.com/abstract=2370644 or http://dx.doi.org/10.2139/ssrn.2370644

Contact Information

James Brushwood
University of Arizona ( email )
Tucson, AZ 85721
United States
Dan S. Dhaliwal
University of Arizona - Department of Accounting ( email )
McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States
Douglas J. Fairhurst
Washington State University ( email )
Todd Hall
P.O. Box 644746
Pullman, WA WA 85721-0108
United States
Matthew A. Serfling (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
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