Voluntary Disclosure and the Cost of Capital

35 Pages Posted: 16 Nov 2013

See all articles by Greg Clinch

Greg Clinch

unaffiliated

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2013

Abstract

We investigate the association between voluntary disclosure and the risk-related discount investors apply to price. First, we study the association between (endogenous) disclosure choice and the discount in price induced by changes in the underlying model parameters: this is akin to an empirical study that overlooks the role of endogenity. Second, we investigate the incremental effect of disclosure on the discount in price: this is akin to an empirical study that controls for the direct effect of exogenous factors on the discount in price. Finally, we examine the incremental effect of disclosure on the discount in price when changes in disclosure are not induced by changes in underlying exogenous parameters: this is akin to an empirical study that controls for the effect of exogenous factors on both the discount in price and disclosure, and focuses on the association between “unexplained disclosure” and the discount.

Keywords: Cost of capital, voluntary disclosure

JEL Classification: G12, G14, G31, M41

Suggested Citation

Clinch, Greg and Verrecchia, Robert E., Voluntary Disclosure and the Cost of Capital (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2354801 or http://dx.doi.org/10.2139/ssrn.2354801

Greg Clinch (Contact Author)

unaffiliated ( email )

41A Scotch Parade
Bonbeach, Victoria 3196
Australia
0422667455 (Phone)

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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