58 Pages Posted: 25 Feb 2009 Last revised: 14 May 2013
Date Written: January 2013
We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital.
Keywords: accounting procedures, asset pricing, cost of capital, financial statements, risk
JEL Classification: M43, M41
Suggested Citation: Suggested Citation
Barth, Mary E. and Konchitchki, Yaniv and Landsman, Wayne R., Cost of Capital and Earnings Transparency (January 2013). Journal of Accounting & Economics (JAE), Forthcoming; Stanford University Graduate School of Business Research Paper No. 2015; Rock Center for Corporate Governance at Stanford University Working Paper No. 48. Available at SSRN: https://ssrn.com/abstract=1348245 or http://dx.doi.org/10.2139/ssrn.1348245