Information disclosure, firm growth, and the cost of capital

Sunil Dutta and Alexander Nezlobin

Journal of Financial Economics, 2017, vol. 123, issue 2, 415-431

Abstract: We study how information disclosure affects the cost of equity capital and investor welfare in a dynamic setting. We show that a firm’s cost of capital decreases (increases) in the precision of public disclosure if the firm’s growth rate is below (above) a certain threshold. The threshold growth rate is higher when the firm’s cash flows are more persistent, or when other firms in the economy are growing at low rates. While current shareholders always prefer maximum public disclosure, future shareholders’ welfare decreases (increases) in the precision of public disclosure if the firm’s growth rate is below (above) the threshold.

Keywords: Cost of capital; Information disclosure; Risk premium; Growth (search for similar items in EconPapers)
JEL-codes: D53 G12 M41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:123:y:2017:i:2:p:415-431

DOI: 10.1016/j.jfineco.2016.04.001

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