Posted: 13 Dec 2000 Last revised: 23 Feb 2013
Date Written: 2000
Economic theory suggests that a commitment by a firm to increased levels of disclosure should lower the information asymmetry component of the firm's cost of capital. But while the theory is compelling, so far empirical results relating increased levels of disclosure to measurable economic benefits have been mixed. One explanation for the mixed results among studies using data from firms publicly registered in the US is that, under current US reporting standards, the disclosure environment is already rich. In this paper, we study German firms that have switched from the German to an international reporting regime (IAS or US-GAAP), thereby committing themselves to increased levels of disclosure. We show that proxies for the information asymmetry component of the cost of capital for the switching firms, namely the bid-ask spread and trading volume, behave in the predicted direction compared to firms employing the German reporting regime.
Keywords: disclosure, international accounting, cost of capital, information asymmetry, liquidity
JEL Classification: D82, M41, G30
Suggested Citation: Suggested Citation
Leuz, Christian and Verrecchia, Robert E., The Economic Consequences of Increased Disclosure (2000). Journal of Accounting Research 38 (Supplement 2000), pp. 91–124. Available at SSRN: https://ssrn.com/abstract=248411