Information Asymmetry, Information Dissemination and the Effect of Regulation FD on the Cost of Capital

Abstract:     
This paper considers the impact of Regulation FD on firms' information environments and costs of capital. For NYSE/AMEX firms we find little evidence of a change in the cost of capital attributable to Regulation FD. For NASDAQ firms we find that Regulation FD increased firms' costs of capital by ten to 19 basis points per annum though the statistical significance of this change is modest for some of our models. We also document substantial cross-sectional variation in the cost of capital changes. We find that cost of capital changes were negatively related to both pre-regulation firm size and PIN. In addition to the findings regarding Regulation FD, this research contributes to a growing literature that documents links between firms' information environments and their costs of capital.

Number of Pages in PDF File: 48

Keywords: Regulation FD, Cost of Capital, Information Asymmetry

JEL Classification: G14, G38

Accepted Paper Series