Cost of Capital Free-Riders

The Accounting Review, Forthcoming

Posted: 9 Dec 2013 Last revised: 19 Dec 2015

See all articles by Stephen P. Baginski

Stephen P. Baginski

University of Georgia - J.M. Tull School of Accounting

Lisa A. Hinson

University of Florida - Warrington College of Business Administration

Date Written: August 18, 2015

Abstract

We document the interrelationship of disclosure policy decisions by providing evidence that the cessation of quarterly management forecast guidance by 656 firms (“stoppers”) during 2004-2009 is associated with a pursuant increase in quarterly forecasts by previously non-forecasting firms in the same industries (“free-riders”). Increased forecasting by free-riders is positively associated with the information loss in the industry (proxied by the number of stoppers in the industry, the strength of previously-existing information transfer relations between the stopper and free-rider, and whether the stopper and free-rider are peer firms) and the importance of the information loss to the free-rider (proxied by analyst following and the existence of new share issues). Following the cessation event, free-rider cost of capital decreases as a function of the extent to which free-riders immediately initiate quarterly forecasting.

Keywords: Management forecasts, disclosure policy, cost of capital, information transfer, free-rider

JEL Classification: M41

Suggested Citation

Baginski, Stephen P. and Hinson, Lisa A., Cost of Capital Free-Riders (August 18, 2015). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2364911 or http://dx.doi.org/10.2139/ssrn.2364911

Stephen P. Baginski (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

Lisa A. Hinson

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

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