The relation between accounting information-based firm risk proxies and cost of equity capital across countries

Tony Kang, Mark Kohlbeck and Yong Yoo

Pacific Accounting Review, 2015, vol. 27, issue 1, 69-94

Abstract: Purpose - – The purpose of this paper is to investigate international variability in the pricing of accounting information usingex antecost of equity capital estimates. Prior literature shows that financial statement amounts are relevant for investor decisions only when there is appropriate economic and legal infrastructure (Ball, 2001). Design/methodology/approach - – Accrual quality and accounting loss are focussed upon as indicators of firm risk in financial statements. Findings - – The evidence suggests that accounting information is factored intoex antecost of equity capital in countries with strong economic and legal infrastructures but not in those with weak infrastructures. Findings support Ball’s notion that the role financial reporting plays in a capital market depends on the strength of economic and legal infrastructure. Originality/value - – Findings support Ball’s notion that the role financial reporting plays in a capital market depends on the strength of economic and legal infrastructure.

Keywords: Accrual quality; Accounting losses (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:parpps:par-03-2013-0019

DOI: 10.1108/PAR-03-2013-0019

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