Disclosure and the Cost of Equity Capital: An Analysis at the Market Level

Posted: 29 Nov 2011 Last revised: 11 Jun 2014

See all articles by Yan Li

Yan Li

Temple University - Fox School of Business and Management

Holly Yang

Singapore Management University - School of Accountancy

Date Written: January 1, 2013

Abstract

This study examines whether market-wide disclosure reduces the market cost of capital. Using a sample of management forecasts issued between 1994 and 2010, we find that an increase in disclosure at the aggregate level results in a lower market cost of capital. This result is robust to controlling for macroeconomic conditions, market volatility, aggregate news, and other determinants of cost of capital. Overall, our findings are consistent with disclosure increasing overall information precision, resulting in a decrease in the cost of capital at the market level.

Keywords: disclosure, implied cost of capital, cost of equity capital, earnings guidance, management forecasts

JEL Classification: M40, M41, G10, G12

Suggested Citation

Li, Yan and Yang, Holly, Disclosure and the Cost of Equity Capital: An Analysis at the Market Level (January 1, 2013). Available at SSRN: https://ssrn.com/abstract=1965663 or http://dx.doi.org/10.2139/ssrn.1965663

Yan Li

Temple University - Fox School of Business and Management ( email )

Philadelphia, PA 19122
United States

Holly Yang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://sites.google.com/site/holly0417phd/

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