Earnings attributes and the cost of equity capital: the case of Tunisian companies

This paper explores the relationship between the cost of equity capital and the earnings attributes in the Tunisian context. Actually, we measured the cost of equity using the CAPM then we studied the relationship between the cost of equity and earning attributes (which are accrual quality, smoothness, conservatism, value relevance, timeliness and persistence). For this reason, we used 26 non-financial companies listed on the Tunisian Stock Exchange from 2008 to 2012. Tunisian companies are characterised by high levels of earnings management and conservatism. In fact firms are more likely to rely on bank financing rather than on capital market and are mostly family-run businesses. This could explain our results, which shows that information quality affects negatively the cost of equity capital. Analysis also reveals that accrual quality and conservatism are the attributes that have the most significant effect on the cost of equity capital. We contribute to the accounting literature by being the first study to examine the relationship between the cost of equity capital and earnings attributes in Tunisia for different stakeholders.