Accounting information quality and systematic risk

Xuejing Xing () and Shan Yan ()
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Xuejing Xing: University of Alabama in Huntsville
Shan Yan: Susquehanna University

Review of Quantitative Finance and Accounting, 2019, vol. 52, issue 1, No 3, 85-103

Abstract: Abstract Whether and how accounting information quality affects the cost of capital has been a matter of much debate. We contribute to this debate by linking accounting information quality to systematic risk, inspired by recent theoretical discussions. Using the universe of firms jointly listed in the CRSP and Compustat databases from 1962 to 2012, we find that accounting information quality is significantly and negatively related to systematic risk. This relation is robust to alternative proxies for the two constructs, including a model-free measure of risk. Further analysis indicates that improving accounting information quality causes systematic risk to decrease. These findings have important implications for disclosure decisions, portfolio management, and asset pricing.

Keywords: Accounting information quality; Systematic risk; Abnormal accruals; Endogeneity (search for similar items in EconPapers)
JEL-codes: G12 G14 M40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11156-018-0703-z

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