Does voluntary disclosure quality pay off? And if so, what are the driving forces behind the relationship of voluntary disclosure quality and the cost of equity capital? This study addresses these and other questions in the context of analyzing the determinants of the cost of equity capital for Swiss firms. The relation between voluntary disclosure quality and cost of equity capital is widely known to be affected by self-selection. Potential endogeneity bias is controlled for by adopting a two-stage least squares approach in a cross-sectional setting. Voluntary disclosure quality is proxied by the annual reports disclosure scores for a well-diversified sample of Swiss firms as developed by the Department of Banking and Finance of the University of Zurich. Further, an ex-ante cost of capital metric derived from the dividend discount model is used in this study. Empirical evidence shows that the association between voluntary disclosure quality and cost of equity differs with a firm's stock listing history. While the relation is predicted to be negative for firms at the IPO stage, it is likely reversed at some point in a firm's stock listing history. These results suggest that analysts' information processing activities negatively moderate the impact of voluntary disclosure quality on firm value. Importantly, the predicted interaction between voluntary disclosure quality and stock listing history remains significant when adjusting for endogeneity.
Inhaltsverzeichnis (Table of Contents)
- I. Problem
- II. Purpose of the study
- III. Methods
- A. Voluntary Disclosure Quality
- B. Cost of Equity Capital
- C. Sample and Variables
- D. Empirical Disclosure Model
- E. Model Specification Tests
- IV. Results
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study aims to investigate the relationship between voluntary disclosure quality and cost of equity capital in a cross-sectional setting. It addresses the potential endogeneity bias by employing a two-stage least squares (2SLS) approach and explores the impact of analyst following and analysts' familiarity with firms having a long stock listing history on this association.
- Examining the causal effect of voluntary disclosure quality on cost of equity capital.
- Investigating the moderating effect of a firm's stock listing history on the relationship between disclosure quality and cost of equity.
- Identifying potential instrumental variables to control for endogeneity bias.
- Exploring the role of analysts' information processing activities in the relationship between voluntary disclosure quality and cost of equity.
- Testing the consistency of the 2SLS model in mitigating endogeneity problems.
Zusammenfassung der Kapitel (Chapter Summaries)
The study begins by outlining the problem of information asymmetry between firms and investors, highlighting how voluntary disclosure quality can mitigate this issue. It then details the purpose of the study, which aims to investigate the relationship between disclosure quality and cost of equity capital while addressing endogeneity concerns. The "Methods" section describes the measures used for voluntary disclosure quality and cost of equity, the sample selection, and the empirical model developed for testing the hypothesis. Finally, the "Results" section presents the findings of the multivariate regression analysis, highlighting the significant relationship between disclosure quality and cost of equity capital, particularly influenced by a firm's stock listing history. The study concludes by discussing the implications of the findings and the need for further research.
Schlüsselwörter (Keywords)
The study focuses on the relationship between voluntary disclosure quality and cost of equity capital, addressing the endogeneity bias through a two-stage least squares approach. The study employs various keywords such as information asymmetry, voluntary disclosure, cost of equity, endogeneity, instrumental variables, stock listing history, analyst following, and information processing activities. The research also emphasizes the importance of firm characteristics such as size, financial leverage, profitability, and growth opportunities.
Frequently Asked Questions
Does high-quality voluntary disclosure reduce the cost of equity?
The study finds that the relationship depends on a firm's listing history. While it can be negative for IPO-stage firms, it may reverse for long-listed firms.
How is voluntary disclosure quality measured in this study?
It is proxied by annual report disclosure scores for Swiss firms, developed by the Department of Banking and Finance at the University of Zurich.
What role do financial analysts play in this context?
Analysts' information processing activities can moderate the impact of disclosure. For well-followed firms, disclosure quality might have a different impact on firm value.
What is the "endogeneity bias" mentioned in the research?
It refers to the fact that firms self-select their disclosure levels based on unobserved factors, which can distort the perceived causal relationship with capital costs.
Which statistical method is used to control for bias?
The study employs a two-stage least squares (2SLS) approach in a cross-sectional setting to provide more reliable results.
- Arbeit zitieren
- Dr. Andreas Zweifel (Autor:in), 2012, An Investigation of the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital, München, GRIN Verlag, https://www.grin.com/document/354793
