ORCID
Edwige Cheynel, https://orcid.org/0000-0001-5763-3253
Language
English (en)
Publication Date
2011
Abstract
This paper explores the links between firms’ voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital and find no crosssectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and nondisclosing firms is positive in aggregate. I further examine whether reductions in cost of capital indicate improved risksharing or investment efficiency. I also find that high (low) disclosure frictions lead to overinvestment (underinvestment) relative to first-best. As average cost of capital proxies for risk-sharing but not investment efficiency, the relation between cost of capital and ex ante efficiency may be ambiguous and often irrelevant.
Document Type
Working Paper
DOI
https://doi.org/10.7936/0b3s-0862
Author's Department
Accounting
Recommended Citation
Cheynel, Edwige, "A Theory of Voluntary Disclosure and Cost of Capital" (2011). Olin Business School Faculty Research. 26.
https://openscholarship.wustl.edu/business_facpubs/26