The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms

32 Pages Posted: 17 Aug 2001

See all articles by Luzi Hail

Luzi Hail

University of Pennsylvania - The Wharton School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002


The relationship between disclosure quality and cost of equity capital is an important topic in today's economy and generally, economic theory and anecdotal evidence suggest a negative association. Empirical work on this link, however, is confronted with major methodological drawbacks - neither disclosure level nor cost of capital can be observed directly - and has documented somewhat confounding results so far. Adopting a finite horizon version of the residual income model, I provide evidence on the nature of the above relationship and try to quantify the effect of a firm's voluntary disclosure policy on its implied cost of capital. Switzerland seems especially suited for an analysis of this kind given that Swiss firms have considerable reporting discretion and the mandated level of disclosure is low. For a cross-sectional sample of 73 non-financial companies I show a negative and highly significant association between the two variables. The magnitude is such that the most forthcoming firms enjoy about a 1.8% to 2.4% cost advantage over the least forthcoming firms. The findings persist even after controlling for other potentially influential variables, e.g. risk characteristics and firm size. Furthermore, adjusting for self-selection bias - a major concern in disclosure studies - the results are generally consistent with the main hypothesis although at lower levels of statistical significance. One reason for the strong relationship might be found in differing institutional factors between the US and the Swiss capital markets.

Keywords: Voluntary disclosure; Disclosure quality; Financial reporting; Valuation; Cost of capital; Analysts' behavior

JEL Classification: M41, M45, G12

Suggested Citation

Hail, Luzi, The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms (May 2002). Available at SSRN: or

Luzi Hail (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-8205 (Phone)
215-573-2054 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics