Disclosure and the Cost of Capital: A Survey of the Theoretical Literature
Routledge Companion to Accounting Theory, Forthcoming
35 Pages Posted: 26 Sep 2014 Last revised: 8 Mar 2016
Date Written: September 24, 2014
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