Disclosure and the Cost of Capital: A Survey of the Theoretical Literature

Bertomeu, Jeremy; Cheynel, Edwige

doi:10.2139/ssrn.2500861

Disclosure and the Cost of Capital: A Survey of the Theoretical Literature

Routledge Companion to Accounting Theory, Forthcoming

Abacus, Forthcoming

Columbia Business School Research Paper No. 15-16

35 Pages Posted: 26 Sep 2014 Last revised: 8 Mar 2016

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

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

Edwige Cheynel

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

There are 2 versions of this paper

Date Written: September 24, 2014

Abstract

This article offers a survey of theoretical research on disclosure and the cost of capital. We summarize the current state of the literature and discuss the channels through which information affects the cost of capital. After giving an overview of asset pricing theory, we examine the rationale for an accounting risk factor or an ex-ante effect of information on the cost of capital. Then, we discuss the role of voluntary disclosure, heterogenous beliefs, investor base, liquidity shocks, earnings management and agency problems as determinants of the cost of capital. Linkages between productive decisions and the cost of capital, and their implication for investor welfare, are also examined.

Keywords: asset pricing, trading, markets, expected return, accounting

JEL Classification: G12, G14, G31, M41, M45

Suggested Citation: Suggested Citation

Bertomeu, Jeremy and Cheynel, Edwige, Disclosure and the Cost of Capital: A Survey of the Theoretical Literature (September 24, 2014). Routledge Companion to Accounting Theory, Forthcoming; Abacus, Forthcoming; Columbia Business School Research Paper No. 15-16. Available at SSRN: https://ssrn.com/abstract=2500861 or http://dx.doi.org/10.2139/ssrn.2500861