Disclosure, Information Asymmetry and the Cost of Equity Capital: Evidence from Indonesia

Erna Setiany and Djoko Suhardjanto

A chapter in Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics, 2021, vol. 28, pp 351-366 from Emerald Group Publishing Limited

Abstract: Purpose:The purpose of this study is to analyze whether information asymmetry (ASYM) plays a mediating role in the relationship between corporate disclosure and cost of equity capital (COEC) in emerging markets such as Indonesia. Design/Methodology/Approach:This study is a quantitative study using secondary data obtained from listed manufacturing firms from 2015 to 2017. Purposive sampling was used to select 105 firms. The design of this study was causality research, and the analysis was performed through ordinary least squares (OLS) regression and path analysis. Findings: The results show that the level of disclosure for corporate social responsibility (CSR), intellectual capital, and enterprise risk management (ERM) reduces the COEC by suppressing ASYM. This finding confirms the argument that managers can reduce their companies’ COEC by reducing ASYM through increased disclosure. These results are controlled by earnings quality (EQL) because that is most relevant to the COEC, as well as corporate size, leverage, and differences in institutional factors. Originality/Value: This research is based on the central assumption that disclosure enhances the level of information while EQL remains the focus for investors. This research is also the first to study CSR disclosure, intellectual capital disclosure, and ERM disclosure together as a proxy for disclosure. The findings confirm that managers can reduce their companies’ agency conflict by increasing their level of disclosure. Managers can also reduce the COEC by reducing ASYM through increased disclosure. This also implies that increasing the level of disclosure will be effective in reducing the COEC for companies in emerging markets, such as Indonesia.

Keywords: Cost of equity capital; corporate social responsibility; enterprise risk management; information asymmetry; intellectual capital; voluntary disclosure (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620210000028020

DOI: 10.1108/S1571-038620210000028020

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