Segment Disclosure and Cost of Capital

45 Pages Posted: 14 May 2015

See all articles by Belen Blanco

Belen Blanco

The University of Adelaide

Juan M. García Lara

Universidad Carlos III de Madrid - Department of Business Administration

Josep A. Tribo

Stevens Institute of Technology

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Date Written: April/May 2015


We investigate whether segment disclosure influences cost of capital. Improved segment reporting is expected to decrease cost of capital by reducing estimation risk. However, in a competitive environment segment disclosure may also generate uncertainties about future prospects and lead to a larger cost of capital. Asset‐pricing tests confirm that segment disclosure is a priced risk factor. Also, segment disclosure reduces ex‐ante estimates of cost of equity capital and other measures connected to risk. These results suggest a negative relation between segment disclosure and cost of capital. Our results also show that competition reduces, but does not eliminate, the previous relationship.

Keywords: segment disclosure, earnings quality, forecast error, cost of capital

Suggested Citation

Blanco, Belen and García Lara, Juan Manuel and Tribo Gine, Josep Antonio, Segment Disclosure and Cost of Capital (April/May 2015). Journal of Business Finance & Accounting, Vol. 42, Issue 3-4, pp. 367-411, 2015, Available at SSRN: or

Belen Blanco (Contact Author)

The University of Adelaide ( email )

10 Pulteney Street
Adelaide, South Australia 5005

Juan Manuel García Lara

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903

Josep Antonio Tribo Gine

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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