Segment Disclosure and Cost of Capital

Journal of Business Finance & Accounting, Forthcoming

45 Pages Posted: 19 Jan 2012 Last revised: 23 Jan 2015

See all articles by Belen Blanco

Belen Blanco

The University of Adelaide

Juan M. García Lara

Universidad Carlos III de Madrid - Department of Business Administration

Josep A. Tribo

Stevens Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: November 24, 2014

Abstract

We investigate whether segment disclosure influences cost of capital. Improved segment reporting is expected to decrease cost of capital by reducing estimation risk. However, in a competitive environment segment disclosure may also generate uncertainties about future prospects and lead to a larger cost of capital. Asset-pricing tests confirm that segment disclosure is a priced risk factor. Also, segment disclosure reduces ex-ante estimates of cost of equity capital and other measures connected to risk. These results suggest a negative relation between segment disclosure and cost of capital. Our results also show that competition reduces, but does not eliminate, the previous relationship.

Keywords: Segment disclosure, earnings quality, diversification, information asymmetries, forecast error, cost of capital

JEL Classification: M41, G12

Suggested Citation

Blanco, Belen and García Lara, Juan Manuel and Tribo Gine, Josep Antonio, Segment Disclosure and Cost of Capital (November 24, 2014). Journal of Business Finance & Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1988151 or http://dx.doi.org/10.2139/ssrn.1988151

Belen Blanco (Contact Author)

The University of Adelaide ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Juan Manuel García Lara

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Josep Antonio Tribo Gine

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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