Did the 2003 Tax Act Reduce the Cost of Equity Capital?

Dhaliwal, Dan S.; Krull, Linda K.; Li, Oliver Zhen

doi:10.2139/ssrn.741327

Cited by 52 publications

(53 citation statements)

References 37 publications

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“…Consistent with Hail and Leuz (2006), we find a positive coefficient on Ferr (0.180, t = 17.70). Finally, consistent with Gebhardt et al (2001), Dhaliwal et al (2005Dhaliwal et al ( , 2007, we find a negative coefficient on LogDisp (-2.763, t = -15.23).…”

Section: The Effect Of Regulation Fair Disclosure On the Cost Of Equisupporting

confidence: 82%

“…Consistent with Dhaliwal et al (2005Dhaliwal et al ( , 2007, we find significantly positive coefficients on b MKT and b HML . But our coefficient on b SMB is insignificant.…”

Section: The Effect Of Regulation Fair Disclosure On the Cost Of Equisupporting

confidence: 77%

“…The firm-specific cost of capital estimates are the internal rates of return (IRR) that equate current stock prices to the present values of future earnings or dividends. These models have been widely used in accounting and finance research to examine various factors affecting expected returns (for example, Botosan 1997;Dhaliwal et al 2005Dhaliwal et al , 2007Daske 2006;Hail and Leuz 2006). Following these studies, we use Gebhardt et al (2001) (hereafter GLS model), Claus and Thomas (2001) (hereafter CT model), and Gode and Mohanram (2003) (hereafter GM model) to estimate the firm-specific cost of capital.…”

Section: Introductionmentioning

confidence: 99%

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Regulation fair disclosure and the cost of equity capital

2009

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We examine the effect of Regulation Fair Disclosure (Reg FD) on the cost of equity capital. We find some evidence that (1) the cost of capital declines in the post-Reg FD period relative to the pre-Reg FD period, on average, for a broad cross-section of US firms, (2) the decrease in the cost of capital post Reg FD is mainly for medium and large firms but is insignificant for small firms, and (3) the decrease in the cost of capital post Reg FD is systematically related to firm characteristics indicative of selective disclosure before Reg FD. In contrast, we find little evidence of a decrease in the cost of capital for American Depositary Receipts and US-listed foreign firms, which are legally exempt from Reg FD. Overall, our findings do not support a conclusion in recent studies that the cost of capital has increased post Reg FD and, if anything, suggest the opposite.

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Section: The Effect Of Regulation Fair Disclosure On the Cost Of Equisupporting

confidence: 82%

“…Consistent with Dhaliwal et al (2005Dhaliwal et al ( , 2007, we find significantly positive coefficients on b MKT and b HML . But our coefficient on b SMB is insignificant.…”

Section: The Effect Of Regulation Fair Disclosure On the Cost Of Equisupporting

confidence: 77%

Section: Introductionmentioning

confidence: 99%

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Regulation fair disclosure and the cost of equity capital

2009

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“…r DKL -Mean adjusted implied cost of capital (Dhaliwal et al, 2006). The measure of expected return adopted by Dhaliwal et al is the mean of r CT , r GLS and r GM , after 'winsorizing' each of these values to a maximum value of 0.5.…”

Section: Alternative Cost Of Equity Capital Measuresmentioning

confidence: 99%

Disclosure, conservatism and the cost of equity capital: A review of the foundation literature

Artiach

Clarkson

2010

Accounting &Amp; Finance

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In this review piece, we survey the literature on the cost of equity capital implications of corporate disclosure and conservative accounting policy choice decisions with the principle objective of providing insights into the design and methodological issues, which underlie the empirical investigations. We begin with a review of the analytical studies most typically cited in the empirical research as providing a theoretical foundation. We then turn to consider literature that offers insights into the selection of proxies for each of our points of interest, cost of equity capital, disclosure quality and accounting conservatism. As a final step, we review selected empirical studies to illustrate the relevant evidence found within the literature. Based on our review, we interpret the literature as providing the researcher with only limited direct guidance on the appropriate choice of measure for each of the constructs of interest. Further, we view the literature as raising questions about both the interpretation of empirical findings in the face of measurement concerns and the suitability of certain theoretical arguments to the research setting. Overall, perhaps the message which is most clear is that one of the most controversial and fundamental issues underlying the literature is the issue of the diversifiability or nondiversifiability of information effects.

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“…Our results do undermine the Auerbach andHassett (2005, 2006) interpretation of positive excess returns on zero-dividend stocks as a consequence of the dividend tax cut. Dhaliwal, Krull and Li (2005) estimate the aggregate valuation effect induced by the tax act. They back out two ex ante estimates of the required return on equity using the level of stock prices and analysts earnings forecasts at two different dates.…”

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confidence: 99%