REEXAMINATION OF THE RELATIONSHIP BETWEEN DISCLOSURE AND COST OF CAPITAL

Randall Zhaohui Xu

Global Journal of Business Research, 2009, vol. 3, issue 1, 15-26

Abstract: This study examines how information environment and industry concentration affect the relations between firms’ financial disclosure quality and cost of capital. Information environment is proxied by firm size, and industry concentration is proxied by four-firm concentration ratio. The study finds a significant negative association between financial disclosure quality and cost of capital only for small firms and firms in more concentrated industries. The results of this study suggest that the contradictory findings in the extant accounting literature (Botosan, 1997; Botosan and Plumlee, 2002; Cheng et al., 2006) may be driven by variation in their sample in terms of firm size. The findings in this paper suggest that managers of small firms should recognize the significant role of disclosure in reducing cost of capital and increase their financial disclosure to enhance firm value.

JEL-codes: D80 G14 M41 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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