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Disclosure channel and cost of capital: evidence from open vs closed conference calls

Yijiang Zhao, Michael Davis and Kevin T. Berry

Review of Accounting and Finance, 2009, vol. 8, issue 3, pages 253-278

Abstract: Purpose – The purpose of this paper is to examine the effect on the cost of capital of increased disclosure that reduces information asymmetry among market participants. Design/methodology/approach – This study uses the decision to regularly hold open (closed) conference calls pre-Reg FD as a proxy for a commitment to the policy of public (selective) disclosure and a cross-sectional research design to examine the associations between open/closed conference calls and three proxies for firms' cost of capital (i.e. bid-ask spreads, share turnover, and implied costs of capital). Findings – The results show that firms that commit to open calls exhibit lower relative bid-ask spreads, lower implied costs of capital, and higher share turnover than firms that commit to closed calls. Practical implications – The findings suggest that increased disclosure that “levels the playing field” for small investors benefits investors as a whole by improving firms' market liquidity and reducing the cost of capital. Originality/value – This study contributes to existing literature on the association between corporate disclosure and firms' cost of capital.

Keywords: Bid offer spreads; Cost of capital; Disclosure; United States of America (search for similar items in EconPapers)
Date: 2009
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