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

38 Pages Posted: 14 Jun 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

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Date Written: June 2016

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, Information, Market, Risk, Risk‐sharing

Suggested Citation

Bertomeu, Jeremy and Cheynel, Edwige, Disclosure and the Cost of Capital: A Survey of the Theoretical Literature (June 2016). Abacus, Vol. 52, Issue 2, pp. 221-258, 2016. Available at SSRN: https://ssrn.com/abstract=2795331 or http://dx.doi.org/10.1111/abac.12076

Jeremy Bertomeu (Contact Author)

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

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Edwige Cheynel

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

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