The Role of Firms’ Life Cycle Stages on Voluntary Disclosure and Cost of Equity Capital in Brazilian Public Companies

Abstract

We examine the effects of firms’ life cycle stages on voluntary disclosure and the cost of equity capital and also the relationship between the interaction of life cycle stages and voluntary disclosures measures on the cost of equity capital. Our sample consists of non-financial Brazilian public companies covered by analysts between 2008 and 2014 collected from I/B/E/S and Comdinheiro databases. We find that voluntary disclosure level is higher for firms in maturity and growth stages. We also find that introduction and decline firms show the higher implied cost of capital, however, decline firms that increase voluntary disclosure reduce their cost of capital. Moreover, mature firms significantly reduce such inherent risk by reporting social and environmental voluntary information. Our results are useful for investors, practitioners, and regulators to the understanding of the incentives of voluntary disclosure practices.

Keywords: Voluntary disclosure, Cost of equity capital, Implied cost of capital, Life cycle stages, Emerging market

JEL Classification: M40, M41