Voluntary Disclosure and the Cost of Capital

Posted: 6 Jun 2015

See all articles by Greg Clinch

Greg Clinch

Macquarie Business School

Robert E. Verrecchia

University of Pennsylvania - Accounting Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2015

Abstract

We investigate the association between voluntary disclosure and the risk-related discount investors apply to price. First, we study the association between (endogenous) disclosure choice and the discount in price induced by changes in the underlying model parameters: this informs empirical research that ignores endogeneity of disclosure by, for example, omitting the exogenous determinants of disclosure and the discount in price from the regressions employed. Second, we investigate the incremental effect of disclosure on the discount in price: this informs empirical research that controls for the direct effect of exogenous factors on the discount in price by, for example, including the exogenous variables in regression models employed. Finally, we examine the incremental effect of disclosure on the discount in price when changes in disclosure are not induced by changes in underlying exogenous parameters: this further informs empirical research that controls for the effect of exogenous factors on both the discount in price and disclosure, and focuses on the association between ‘unexplained disclosure’ and the discount.

Keywords: cost of capital, voluntary disclosure

Suggested Citation

Clinch, Greg and Verrecchia, Robert E., Voluntary Disclosure and the Cost of Capital (May 1, 2015). Australian Journal of Management, Vol. 40, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=2614514

Greg Clinch (Contact Author)

Macquarie Business School ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
United States

Robert E. Verrecchia

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6976 (Phone)
215-573-2054 (Fax)

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