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Disclosure level and cost of equity capital: evidence from the banking industry

✍ Scribed by Sunil Poshakwale; John K. Courtis

Publisher: John Wiley and Sons
Year: 2005
Tongue: English
Weight: 155 KB
Volume: 26
Category: Article
ISSN: 0143-6570
DOI: 10.1002/mde.1256

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

The impact of voluntary disclosures on cost of equity capital is of significant interest to investors and managers. Using a disclosure scoring model this association is examined for 135 banks from Europe, North America and Australia. After controlling for the cross‐sectional variation in beta, firm size, price to book value and price to earnings ratios, the study found that higher disclosure levels are associated with a reduction in cost of equity capital. Disclosures about risk management practices seem to most influence the reduction in the cost of equity capital. European banks show greater reduction in the cost of equity capital from improved disclosures compared to their non‐European counterparts. Copyright © 2005 John Wiley & Sons, Ltd.

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