Disclosure, Liquidity, and the Cost of Capital

Diamond, Douglas W.; Verrecchia, Robert E.

doi:10.2307/2328861

Cited by 1,085 publications

(979 citation statements)

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“…• increase the stock liquidity, thus improving investors' trust about the (affected) "fair price" of stock transactions-e.g., [45,46]; • reduce the cost of capital, limiting the information risk-e.g., [47][48][49][50][51]; • develop information intermediation, reducing the cost of attaining data for financial analysts-e.g., [52,53].…”

Section: Corporate Disclosure and Capital Markets: A Brief Literaturementioning

confidence: 99%

Corporate Disclosure, Materiality, and Integrated Report: An Event Study Analysis

2017

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Within the extensive literature investigating the impacts of corporate disclosure in supporting the sustainable growth of an organization, few studies have included in the analysis the materiality issue referred to the information being disclosed. This article aims to address this gap, exploring the effect produced on capital markets by the publication of a recent corporate reporting tool, Integrated Report (IR). The features of this tool are that it aims to represent the multidimensional impact of the organization's activity and assumes materiality as a guiding principle of the report drafting. Adopting the event study methodology associated with a statistical significance test for categorical data, our results verify that an organization's release of IR is able to produce a statistically significant impact on the related share prices. Moreover, the term "integrated" assigned to the reports plays a significant role in the impact on capital markets. Our findings have beneficial implications for both researchers and practitioners, adding new evidence for the IR usefulness as a corporate disclosure tool and the effect of an organization's decision to disclose material information.

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Section: Corporate Disclosure and Capital Markets: A Brief Literaturementioning

confidence: 99%

Corporate Disclosure, Materiality, and Integrated Report: An Event Study Analysis

2017

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“…High levels of uncertainty and information asymmetries suggest higher levels of volatility, i.e., higher standard deviation of stock returns. Analytical research has shown that, in addition to the release of public financial information, the quality of disclosures affects the levels of uncertainty and information asymmetry in the capital markets (e.g., Diamond and Verrecchia, 1991). I measure volatility as the standard deviation of daily stock returns calculated over the 12 months following June of year t.…”

Section: Standard Deviation Of Stock Returnsmentioning

confidence: 99%

Does Information Risk Really Matter? An Analysis of the Determinants and Economic Consequences of Financial Reporting Quality

Cohen

2008

Asia-Pacific Journal of Accounting & Economics

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Controlling for firm-specific characteristics determining financial reporting quality, this paper finds evidence of a negative association between firms' total risk and financial reporting quality. While the results imply that firms providing financial information of higher quality do not necessarily enjoy a lower cost of equity capital, a significant negative relation is documented between reporting quality and idiosyncratic risk. This suggests that the quality of accounting information is not an additional systematic priced risk factor as suggested in recent studies. The evidence reported demonstrates the importance of explicitly controlling for the determinants of financial reporting quality when investigating the associated economic consequences.JEL Classification: D80, G12, G14, M41

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“…A third stream of literature puts the focus on enhanced market liquidity resulting from more comprehensive firm disclosures, either through decreased transaction costs or an increased demand for a firm's shares ('market-liquidity approach', e.g., Demsetz 1968;Glosten and Milgrom 1985;Diamond andVerrecchia 1991 or Baiman andVerrecchia 1996). As Verrecchia (1999: 282) points out, ''in the absence of compelling reasons to the contrary, the conventional wisdom is that more disclosure results in more liquid markets.''…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…First, investors are less subject to implied transaction cost (Botosan 2000;Leuz and Wysocki 2008). Second, as investors may buy or sell on liquid markets with less risk of future order imbalances, they take larger current positions (Diamond and Verrecchia 1991;Baiman and Verrecchia 1996). In both cases, stock prices increase with higher market liquidity, thus implying a decreased cost of equity capital.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Let’s talk strategy: the impact of voluntary strategy disclosure on the cost of equity capital

Sieber

Weißenberger

Oberdörster

et al. 2014

Bus Res

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This paper deals with the impact of voluntary strategy disclosure in management reports on the cost of equity capital. Such an impact is not obvious, as investors might consider strategy information as “cheap talk” and therefore ignore it. We analyze a sample of 100 German listed firms from 2002 to 2008, measuring strategy disclosure levels using hand-collected strategy disclosure scores. We find that higher disclosure levels are, on average, associated with lower cost of equity capital even after controlling for overall disclosure quality. The paper contributes to the field by providing evidence that voluntary strategy disclosures in firms’ management reports reduce the information asymmetry component of cost of capital and therefore can be considered as a relevant source of information for investors.

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Disclosure, Liquidity, and the Cost of Capital

Cited by 1,085 publications

References 0 publications

Corporate Disclosure, Materiality, and Integrated Report: An Event Study Analysis

Corporate Disclosure, Materiality, and Integrated Report: An Event Study Analysis

Does Information Risk Really Matter? An Analysis of the Determinants and Economic Consequences of Financial Reporting Quality

Let’s talk strategy: the impact of voluntary strategy disclosure on the cost of equity capital

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