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Does hedge disclosure influence cost of capital for European banks?

Tamer Elshandidy and Albert Acheampong

International Review of Financial Analysis, 2021, vol. 78, issue C

Abstract: Upon extracting and quantifying relevant hedge information from the narrative section of European banks annual reports, this paper examines the impact of such information on cost of capital [as measured by weighted average cost of capital (WACC), cost of equity (COE) and cost of debt (COD)]. Using a sample of 1885 bank-year observations from 19 countries, we find that textual hedge disclosure leads to a significant reduction in WACC, COE, and COD; thus explains a substantial portion of variation in cost of capital. Further, we find that these results are stronger in countries with high corruption and financial openness. Our results are robust to several controls and model specification. Collectively, our findings enrich prior evidence which examines the economic consequences of hedge disclosure.

Keywords: Hedging; Cost of capital; Cost of equity; Cost of debt; Textual analysis; Annual reports (search for similar items in EconPapers)
JEL-codes: G20 G21 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:78:y:2021:i:c:s1057521921002635

DOI: 10.1016/j.irfa.2021.101942

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