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Reexamination Of The Relationship Between Disclosure And Cost Of Capital

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  • Randall Zhaohui Xu

Abstract

This study examines how information environment and industry concentration affect the relations between firms’ financial disclosure quality and cost of capital. Information environment is proxied by firm size, and industry concentration is proxied by four-firm concentration ratio. The study finds a significant negative association between financial disclosure quality and cost of capital only for small firms and firms in more concentrated industries. The results of this study suggest that the contradictory findings in the extant accounting literature (Botosan, 1997; Botosan and Plumlee, 2002; Cheng et al., 2006) may be driven by variation in their sample in terms of firm size. The findings in this paper suggest that managers of small firms should recognize the significant role of disclosure in reducing cost of capital and increase their financial disclosure to enhance firm value.

Suggested Citation

  • Randall Zhaohui Xu, 2009. "Reexamination Of The Relationship Between Disclosure And Cost Of Capital," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(1), pages 15-26.
    • Handle: RePEc:ibf:gjbres:v:3:y:2009:i:1:p:15-26
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    Cited by:

    1. Schreder, Max, 2018. "Idiosyncratic information and the cost of equity capital: A meta-analytic review of the literature," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 142-172.

    More about this item

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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