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Accounting information quality and systematic risk

Author

Listed:
  • Xuejing Xing

    (University of Alabama in Huntsville)

  • Shan Yan

    (Susquehanna University)

Abstract

Whether and how accounting information quality affects the cost of capital has been a matter of much debate. We contribute to this debate by linking accounting information quality to systematic risk, inspired by recent theoretical discussions. Using the universe of firms jointly listed in the CRSP and Compustat databases from 1962 to 2012, we find that accounting information quality is significantly and negatively related to systematic risk. This relation is robust to alternative proxies for the two constructs, including a model-free measure of risk. Further analysis indicates that improving accounting information quality causes systematic risk to decrease. These findings have important implications for disclosure decisions, portfolio management, and asset pricing.

Suggested Citation

  • Xuejing Xing & Shan Yan, 2019. "Accounting information quality and systematic risk," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 85-103, January.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:1:d:10.1007_s11156-018-0703-z
    DOI: 10.1007/s11156-018-0703-z
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    2. Monica Laura Zlati & Valentin Marian Antohi & Petronela Cardon, 2019. "Correction of Accounting Errors through Post Balance Sheet Event Analysis for Romanian Companies," Economies, MDPI, vol. 7(2), pages 1-22, April.
    3. Elżbieta Izabela Szczepankiewicz & Windham Eugene Loopesko & Farid Ullah, 2022. "A Model of Risk Information Disclosures in Non-Financial Corporate Reports of Socially Responsible Energy Companies in Poland," Energies, MDPI, vol. 15(7), pages 1-34, April.
    4. Liu, Hao & Zhang, Hao & Gao, Ya-Chun & Chen, Xu-Dong, 2022. "Firm age and beta: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 244-261.
    5. Baig, Ahmed & DeLisle, R. Jared & Zaynutdinova, Gulnara R., 2022. "Index mutual fund ownership and financial reporting quality," Research in International Business and Finance, Elsevier, vol. 62(C).
    6. Anna Bartoszewicz & Anna Rutkowska-Ziarko, 2021. "Practice of Non-Financial Reports Assurance Services in the Polish Audit Market—The Range, Limits and Prospects for the Future," Risks, MDPI, vol. 9(10), pages 1-23, October.
    7. Bhuiyan, Md. Borhan Uddin & Cheema, Muhammad A., 2024. "Overlapping committee membership and cost of equity capital," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    8. Magdalena Janowicz, 2021. "Business Combination Under Common Control (BCUCC) - What Kind of Disclosure is Enough? The Polish Experience," European Research Studies Journal, European Research Studies Journal, vol. 0(2B), pages 1004-1013.

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    More about this item

    Keywords

    Accounting information quality; Systematic risk; Abnormal accruals; Endogeneity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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