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Cost of Capital and Earnings Transparency

58 Pages Posted: 25 Feb 2009 Last revised: 14 May 2013

Mary E. Barth

Stanford University - Graduate School of Business

Yaniv Konchitchki

University of California, Berkeley - Haas School of Business

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Date Written: January 2013

Abstract

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

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

Mary E. Barth (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Yaniv Konchitchki

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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