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Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is there Really an Effect on the Cost of Equity Capital?

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  • Florian Eugster

Abstract

Research on the effects of voluntary disclosure quality on the cost of equity capital is often plagued by endogeneity concerns. In this paper, I use a dynamic panel system GMM estimator, which provides internal instruments from the firm's history that directly address endogeneity arising from unobserved heterogeneity and simultaneity. By using hand‐collected voluntary disclosure scores for firms listed in the Swiss stock exchange, I examine the dynamic relation between voluntary disclosure quality and the cost of equity capital in a panel over a period of 10 years. The results suggest that the relation between voluntary disclosure quality and the cost of equity capital becomes insignificant after controlling adequately for potential dynamic endogeneity, simultaneity, and unobserved heterogeneity. Endogénéité et dynamique de la qualité de l'information facultative : l'incidence sur le coût des capitaux propres est‐elle réelle? Les recherches sur l'incidence de la qualité de l'information facultative sur le coût des capitaux propres se heurtent souvent à des problèmes d'endogénéité. L'auteur utilise un estimateur MGM (méthode généralisée des moments) en système de panel dynamique permettant de puiser dans l'historique de l'entreprise des instruments internes propres à résoudre directement les problèmes d'endogénéité découlant de l'hétérogénéité non observée et de la simultanéité. À l'aide de cotes compilées manuellement relatives à l'information facultative communiquée par des sociétés cotées à la Bourse suisse, l'auteur étudie la relation dynamique entre la qualité de l'information facultative et le coût des capitaux propres en panel, sur une période de 10 ans. Les résultats de l'analyse semblent indiquer que la relation entre la qualité de l'information facultative et le coût des capitaux propres devient négligeable une fois contrôlées adéquatement l'endogénéité dynamique potentielle, la simultanéité et l'hétérogénéité non observée.

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  • Florian Eugster, 2020. "Endogeneity and the Dynamics of Voluntary Disclosure Quality: Is there Really an Effect on the Cost of Equity Capital?," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2590-2614, December.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:4:p:2590-2614
    DOI: 10.1111/1911-3846.12584
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    4. Ho-Tan-Phat Phan & Francesco De Luca & Lea Iaia, 2020. "The “Walk” towards the UN Sustainable Development Goals: Does Mandated “Talk” through NonFinancial Disclosure Affect Companies’ Financial Performance?," Sustainability, MDPI, vol. 12(6), pages 1-20, March.
    5. Bofinger, Yannik & Heyden, Kim J. & Rock, Björn, 2022. "Corporate social responsibility and market efficiency: Evidence from ESG and misvaluation measures," Journal of Banking & Finance, Elsevier, vol. 134(C).
    6. Francesco De Luca & Andrea Cardoni & Ho-Tan-Phat Phan & Evgeniia Kiseleva, 2020. "Does Structural Capital Affect SDGs Risk-Related Disclosure Quality? An Empirical Investigation of Italian Large Listed Companies," Sustainability, MDPI, vol. 12(5), pages 1-20, February.
    7. Dzieliński, Michał & Eugster, Florian & Sjöström, Emma & Wagner, Alexander F., 2022. "Climate Talk in Corporate Earnings Calls," Misum Working Paper Series 2022-6, Stockholm School of Economics, Mistra Center for Sustainable Markets (Misum).
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