Author: Ronald Paul GuidryPublisher:
ISBN:
Category : Corporation reports
Languages : en
Pages : 240
Book Description
Enhanced Voluntary Disclosures and Its Effects on the Cost of Capital
Author: Ronald Paul GuidryPublisher:
ISBN:
Category : Corporation reports
Languages : en
Pages : 240
Book Description
The Expected Costs of Increased Disclosure. Firm- and Industry-specific Forces
Author: Simon KrögerPublisher: GRIN Verlag
ISBN: 3346219763
Category : Business & Economics
Languages : en
Pages : 26
Book Description
Seminar paper from the year 2020 in the subject Business economics - Accounting and Taxes, grade: 1.0, Mannheim University of Applied Sciences, language: English, abstract: A series of financial crises and corporate scandals gave rise to increasing concerns about prevailing models of corporate governance and disclosure and stimulated financial disclosure and reporting regulation. As a result, there has been considerably more interest in documenting the benefits of increased disclosure than its costs. Accordingly, numerous papers purport to provide evidence of capital market benefits through incremental disclosure. At the same time, firms refrain from voluntarily committing to increased disclosure, implying that there must be a trade-off between associated benefits and costs. Consequently, critics contend that the capital market benefits are inconclusive. Instead, increased disclosure may result in adverse capital market effects through increasing information asymmetry. Moreover, critics predict that increased disclosure imposes further costs on the firm. The purpose of this seminar thesis is to review existing literature on these expected costs of increased disclosure. Thereby, I focus on controversies regarding the heavily debated capital market effects as well as on specific forces that determine proprietary and litigation costs associated with increased disclosure. While a firm’s disclosure choices likely are a joint outcome of market forces and incentives provided by regulation, the seminar thesis is limited to voluntary disclosure choices as a starting point for possible disclosure regulation. The remainder of the seminar thesis is structured as follows. Section 2 reviews the literature on the capital market effects of voluntary disclosure through its impact on information asymmetry. Section 3 discusses the ambiguous impact of voluntary disclosure on litigation and proprietary costs. Section 4 concludes the seminar thesis.
Effects of Corporate Disclosure on a Firm’s Cost of Capital
Author: Markus BäderPublisher: GRIN Verlag
ISBN: 3668225885
Category : Business & Economics
Languages : en
Pages : 72
Book Description
Bachelor Thesis from the year 2015 in the subject Business economics - Investment and Finance, grade: 1.0, accadis Hochschule Bad Homburg, course: Final Thesis, language: English, abstract: The potential relation of increased levels of corporate disclosure on a firm’s cost of capital remains of great importance, both from a research-focussed and business- oriented point-of-view; however, the existence of methodological drawbacks has led to ever more complex studies, which eventually made the literature vast and confusing for outside readers. The purpose of this thesis was to organise and thereby simplify the different perspectives on a dynamic issue. It is argued that, in theory, enhanced transparency levels the marketplace by spreading information more equally among investors. Consequently, the information asymmetry component is mitigated, which translates into lower levels of estimation risk, transaction costs and default risk. After all, theoretical studies provided evidence that increased disclosure lowers the costs of capital. However, since neither of the involved components is directly observable, a myriad of approaches emerged to approximate actual figures. Although most of these proxies follow similar patterns, it is argued that none of the present approaches is free from constraints, which, in turn, affects the reliability of existing empirical studies. Research, after all, still lacks a generally accepted and holistic approach to the present day. In this context, one of the most recent findings provides a new and rather praxis-oriented perspective, by arguing that firms and investors are merely interested in a good-practice level of disclosure. Regardless of the perspective, an ultimate conclusion has yet to be revealed by the literature and it seems illusory that academics and practitioners agree on one approach in the future. Nevertheless, the contribution of this thesis was merely to structure and simplify the current state of a dynamic issue. The author therefore used easy to understand graphics and tables and linked the findings to related fields of research, where necessary.
Earnings Quality
Author: Jennifer FrancisPublisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Disclosure Interactions
Author: Miles B. GietzmannPublisher:
ISBN:
Category :
Languages : en
Pages : 29
Book Description
In this research we consider how disclosure of accounting policy interacts with subsequent choice over voluntary disclosure of a non-financial performance metric. We compare and contrast regimes. In the first, firms are free to choose between a conservative or an aggressive accounting policy before they decide whether to make additional voluntary disclosures. In the other regime, all firms either voluntarily or via mandation use the same accounting policy. We then investigate the cost of capital for firms under the two regimes. We show that communication via voluntary disclosure need not be a simple substitute for communication via accounting policy choice.Key Words: Voluntary disclosure; Accounting policy choice; Cost of capital.
An Investigation of the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital
Author: Andreas ZweifelPublisher: GRIN Verlag
ISBN: 3668410623
Category : Business & Economics
Languages : en
Pages : 100
Book Description
Master's Thesis from the year 2012 in the subject Economics - Finance, grade: 5.5, University of Zurich (Department of Banking and Finance), course: Economics and Finance, language: English, abstract: 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.
The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms
Author: Luzi HailPublisher:
ISBN:
Category :
Languages : en
Pages : 32
Book Description
The relationship between disclosure quality and cost of equity capital is an important topic in today's economy and generally, economic theory and anecdotal evidence suggest a negative association. Empirical work on this link, however, is confronted with major methodological drawbacks - neither disclosure level nor cost of capital can be observed directly - and has documented somewhat confounding results so far. Adopting a finite horizon version of the residual income model, I provide evidence on the nature of the above relationship and try to quantify the effect of a firm's voluntary disclosure policy on its implied cost of capital. Switzerland seems especially suited for an analysis of this kind given that Swiss firms have considerable reporting discretion and the mandated level of disclosure is low. For a cross-sectional sample of 73 non-financial companies I show a negative and highly significant association between the two variables. The magnitude is such that the most forthcoming firms enjoy about a 1.8% to 2.4% cost advantage over the least forthcoming firms. The findings persist even after controlling for other potentially influential variables, e.g. risk characteristics and firm size. Furthermore, adjusting for self-selection bias - a major concern in disclosure studies - the results are generally consistent with the main hypothesis although at lower levels of statistical significance. One reason for the strong relationship might be found in differing institutional factors between the US and the Swiss capital markets.
Effects of Corporate Disclosure on a Firm's Cost of Capital
Author: Markus BaderPublisher: GRIN Verlag
ISBN: 9783668225893
Category :
Languages : en
Pages : 72
Book Description
Bachelor Thesis from the year 2015 in the subject Business economics - Investment and Finance, grade: 1.0, accadis International College Bad Homburg, course: Final Thesis, language: English, abstract: The potential relation of increased levels of corporate disclosure on a firm's cost of capital remains of great importance, both from a research-focussed and business- oriented point-of-view; however, the existence of methodological drawbacks has led to ever more complex studies, which eventually made the literature vast and confusing for outside readers. The purpose of this thesis was to organise and thereby simplify the different perspectives on a dynamic issue. It is argued that, in theory, enhanced transparency levels the marketplace by spreading information more equally among investors. Consequently, the information asymmetry component is mitigated, which translates into lower levels of estimation risk, transaction costs and default risk. After all, theoretical studies provided evidence that increased disclosure lowers the costs of capital. However, since neither of the involved components is directly observable, a myriad of approaches emerged to approximate actual figures. Although most of these proxies follow similar patterns, it is argued that none of the present approaches is free from constraints, which, in turn, affects the reliability of existing empirical studies. Research, after all, still lacks a generally accepted and holistic approach to the present day. In this context, one of the most recent findings provides a new and rather praxis-oriented perspective, by arguing that firms and investors are merely interested in a good-practice level of disclosure. Regardless of the perspective, an ultimate conclusion has yet to be revealed by the literature and it seems illusory that academics and practitioners agree on one approach in the future. Nevertheless, the contribution of this thesis was merely to structure and simplify the current state of a dynamic i
The Effect of Disclosure Level on the Cost of Equitycapital
Author: Christine BotosanPublisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
A lower cost of equity capital is believed by some to be a benefit of greater voluntary disclosure. I examine this association by regressing cost of capital on beta firm size and a self-constructed disclosure index based on the level of voluntary disclosure provided by 122 manufacturing firms in their 1990 annual reports. The results suggest that for lightly followed firms greater voluntary disclosure reduces cost of equity capital. No such association is found for heavily followed firms. I obtain firm-specific cost of equity capital estimates from an accounting based valuation formula. This approach incorporates forecast data thereby yielding an estimate of expected cost of equity capital and avoiding the noise arising from ex-post deviations from expected value. The association between the cost of equity capital estimates thus obtained and market beta is positive; its correlation with market value is negative. An examination of the internal consistency of the disclosure index and its association with firm characteristics identified in prior research to be correlated with annual report disclosure level provide support for the claim that the index is a valid and reliable measure of disclosure level.
Accounting Disclosure and Real Effects
Author: Chandra KanodiaPublisher: Now Publishers Inc
ISBN: 1601980620
Category : Business & Economics
Languages : en
Pages : 105
Book Description
Kanodia presents a new approach to the study of accounting measurement that argues that how firms' economic transactions, earnings, and capital flows are measured and reported to the capital markets has substantial effects on the firms' real decisions and on the allocation of resources.