A Theory of Voluntary Disclosure and Cost of Capital

Review of Accounting Studies, Forthcoming

35 Pages Posted: 19 Jul 2012 Last revised: 5 Sep 2012

See all articles by Edwige Cheynel

Edwige Cheynel

University of California, San Diego (UCSD) - Rady School of Management

Date Written: April 12, 2012

Abstract

This paper explores the links between firms’ voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital, and find no cross-sectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and non-disclosing firms is positive in aggregate. I further examine whether reductions in cost of capital indicate improved risk-sharing or investment efficiency. I also find that high (low) disclosure frictions lead to overinvestment (underinvestment) relative to first-best. As average cost of capital proxies for risk-sharing but not investment efficiency, the relation between cost of capital and ex-ante efficiency may be ambiguous and often irrelevant.

Keywords: cost of capital, systematic risk, voluntary disclosure

JEL Classification: G12, M41

Suggested Citation

Cheynel, Edwige, A Theory of Voluntary Disclosure and Cost of Capital (April 12, 2012). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2112174

Edwige Cheynel (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

Register to save articles to
your library

Register

Paper statistics

Downloads
499
rank
54,112
Abstract Views
1,864
PlumX Metrics