The Complementarity Between Segment Disclosure and Earnings Quality, and its Effect on Cost Capital

Belén Blanco, Juan M. Garcia Lara () and Josep Tribó

No 1005, Working Papers from Departament Empresa, Universitat Autònoma de Barcelona

Abstract: We investigate the role of earnings quality in determining the levels of segment disclosure, and hether and how better quality earnings and segment disclosure influences cost of capital. Using a large US sample for the period 2001-2006, we find a positive relation between earnings quality and levels of segment disclosures. We also find that firms providing better quality segment information, contingent upon good earnings quality, enjoy lower cost of capital. We base our empirical tests on a self created index of segment disclosure. Our results contribute to a better understanding of (1) the incentives for providing segment disclosures, and (2) how account ing quality (quality of segment information and earnings quality) is related to the cost of capital.

Keywords: Segment disclosure; earnings quality; diversification; information asymmetries; forecast error; cost of capital. (search for similar items in EconPapers)
JEL-codes: G12 M41 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2009-11, Revised 2010-02
References: View references in EconPapers View complete reference list from CitEc
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Published in Working Papers at the Department of Business, February pages 1-65

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