How Credit Market Conditions Impact The Effect Of Voluntary Disclosure On Firms Cost Of Debt Capital

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How Credit Market Conditions Impact the Effect of Voluntary Disclosure on Firms' Cost of Debt Capital

Author : Bret Scott
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (819 download)

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Book Synopsis How Credit Market Conditions Impact the Effect of Voluntary Disclosure on Firms' Cost of Debt Capital by : Bret Scott

Download or read book How Credit Market Conditions Impact the Effect of Voluntary Disclosure on Firms' Cost of Debt Capital written by Bret Scott and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior literature finds that firms incur a lower cost of debt capital when they voluntarily disclose information. However, the economic literature demonstrates that creditors̕ lending standards become more stringent (lax) when credit is rationed (abundant) suggesting that they value voluntary disclosure from borrowers differentially across credit market regimes. I draw upon the economic and finance literature on credit rationing to test whether the effects of voluntary disclosure on firms̕ cost of debt capital is greater during periods of credit rationing. I provide some evidence that confirms this prediction. Moreover, I provide some evidence that this relation is stronger for smaller firms than larger firms during periods of credit rationing suggesting that creditors value voluntary disclosure more from firms that have fewer resources to cover the increased agency cost of lending during periods of credit rationing.

An Investigation of the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital

Author : Andreas Zweifel
Publisher : GRIN Verlag
ISBN 13 : 3668410623
Total Pages : 100 pages
Book Rating : 4.6/5 (684 download)

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Book Synopsis An Investigation of the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital by : Andreas Zweifel

Download or read book An Investigation of the Causal Effect of Voluntary Disclosure Quality on Cost of Equity Capital written by Andreas Zweifel and published by GRIN Verlag. This book was released on 2017-03-07 with total page 100 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 Narrative Disclosure Readability on Bond Ratings and the Cost of Debt Capital

Author : Samuel B. Bonsall
Publisher :
ISBN 13 :
Total Pages : 45 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Impact of Narrative Disclosure Readability on Bond Ratings and the Cost of Debt Capital by : Samuel B. Bonsall

Download or read book The Impact of Narrative Disclosure Readability on Bond Ratings and the Cost of Debt Capital written by Samuel B. Bonsall and published by . This book was released on 2016 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research on the determinants of credit ratings has focused primarily on rating agencies' use of quantitative accounting information, but the impact of financial disclosures, particularly textual attributes, on the bond rating process has gone relatively unexplored. This study examines the potential impact of the financial disclosure narrative on various bond market outcomes. We find that less readable financial disclosures are associated with less favorable ratings (higher default risk), greater bond rating agency disagreement, and a higher cost of debt capital. To address the potential confound that our results may be influenced by some underlying firm characteristic (e.g., firm complexity), we take advantage of a regulatory intervention provided by the 1998 Plain English Mandate requiring a subset of firms to exogenously improve the readability of their filings. Using a difference-in-differences design, we find that the firms required to improve the readability of their filings experience more favorable ratings (lower default risk), lower bond rating disagreement, and lower cost of debt capital. Collectively, our evidence suggests that textual financial disclosure attributes appear to not only influence bond market intermediaries' opinions, but also firms' cost of debt capital.

The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms

Author : Luzi Hail
Publisher :
ISBN 13 :
Total Pages : 32 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms by : Luzi Hail

Download or read book The Impact of Voluntary Corporate Disclosures on the Ex Ante Cost of Capital for Swiss Firms written by Luzi Hail and published by . This book was released on 2011 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

The Expected Costs of Increased Disclosure. Firm- and Industry-specific Forces

Author : Simon Kröger
Publisher :
ISBN 13 : 9783346219770
Total Pages : 32 pages
Book Rating : 4.2/5 (197 download)

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Book Synopsis The Expected Costs of Increased Disclosure. Firm- and Industry-specific Forces by : Simon Kröger

Download or read book The Expected Costs of Increased Disclosure. Firm- and Industry-specific Forces written by Simon Kröger and published by . This book was released on 2020-06-11 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Disclosure Interactions

Author : Miles B. Gietzmann
Publisher :
ISBN 13 :
Total Pages : 29 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Disclosure Interactions by : Miles B. Gietzmann

Download or read book Disclosure Interactions written by Miles B. Gietzmann and published by . This book was released on 2000 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

The Effect of Disclosure Level on the Cost of Equity Capital and Stock Market Liquidity

Author : Christine Ann Botosan
Publisher :
ISBN 13 :
Total Pages : 220 pages
Book Rating : 4.3/5 (91 download)

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Book Synopsis The Effect of Disclosure Level on the Cost of Equity Capital and Stock Market Liquidity by : Christine Ann Botosan

Download or read book The Effect of Disclosure Level on the Cost of Equity Capital and Stock Market Liquidity written by Christine Ann Botosan and published by . This book was released on 1995 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Impact of Voluntary Disclosure Level on the Cost of Equity Capital in an Emerging Capital Market

Author : Ayman Elias Haddad
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (11 download)

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Book Synopsis The Impact of Voluntary Disclosure Level on the Cost of Equity Capital in an Emerging Capital Market by : Ayman Elias Haddad

Download or read book The Impact of Voluntary Disclosure Level on the Cost of Equity Capital in an Emerging Capital Market written by Ayman Elias Haddad and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

The Effect of Disclosure Level on the Cost of Equitycapital

Author : Christine Botosan
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Effect of Disclosure Level on the Cost of Equitycapital by : Christine Botosan

Download or read book The Effect of Disclosure Level on the Cost of Equitycapital written by Christine Botosan and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Effects of Corporate Disclosure on a Firm's Cost of Capital

Author : Markus Bader
Publisher : GRIN Verlag
ISBN 13 : 9783668225893
Total Pages : 72 pages
Book Rating : 4.2/5 (258 download)

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Book Synopsis Effects of Corporate Disclosure on a Firm's Cost of Capital by : Markus Bader

Download or read book Effects of Corporate Disclosure on a Firm's Cost of Capital written by Markus Bader and published by GRIN Verlag. This book was released on 2016-07-14 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Voluntary Disclosure and Information Asymmetry

Author : Nemit Shroff
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Voluntary Disclosure and Information Asymmetry by : Nemit Shroff

Download or read book Voluntary Disclosure and Information Asymmetry written by Nemit Shroff and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2005, the SEC enacted the Securities Offering Reform (Reform), which relaxes 'gun jumping' restrictions, thereby allowing firms to more freely disclose information before equity offerings. We examine the effect of the Reform on voluntary disclosure behavior before equity offerings and the associated economic consequences. We find that firms provide significantly more pre-offering disclosures after the Reform. Further, we find that these pre-offering disclosures are associated with a decrease in information asymmetry and a reduction in the cost of raising equity capital. Our findings not only inform the debate on the market effect of the Reform, but also speak to the literature on the relation between voluntary disclosure and information asymmetry by examining the effect of quasi-exogenous changes in voluntary disclosure on information asymmetry, and thus a firm's cost of capital.

The Economic Effects of Increased Corporate Disclosure

Author : Sun Liu
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis The Economic Effects of Increased Corporate Disclosure by : Sun Liu

Download or read book The Economic Effects of Increased Corporate Disclosure written by Sun Liu and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the estimation risk prospective of whether greater corporate disclosure results in smaller stock return volatilities (thus less risk premiums being claimed by outside investors) and a lower cost of equity capital in a low disclosure environment, namely that of the two Chinese stock exchanges. While this paper finds that corporate disclosure is negatively associated with total stock return volatility, the extent of information asymmetry with respect to firm-specific characteristics or idiosyncratic risk appears to play a vital role in determining whether this negative relationship is statistically significant. In addition, this paper finds that the extent of listed companies' mandatory disclosure, but not the extent of their voluntary disclosure, is negatively related to stock return volatility. This appears to reflect the unique disclosure environment in China with its weak enforcement mechanisms, where companies tend to treat mandatory and voluntary disclosures as substitutes. However, the finding suggests that the market does not perceive voluntary disclosure to be an effective substitute for mandatory disclosure. This paper therefore provides further country-level evidence to support the view that the extent of negative association between disclosure and the cost of equity capital is primarily dependent upon the specific features of stock markets and the disclosure environment in different nations.

Voluntary Disclosure and Increases in Earnings

Author : Gregory Smith Miller
Publisher :
ISBN 13 :
Total Pages : 198 pages
Book Rating : 4.3/5 (91 download)

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Book Synopsis Voluntary Disclosure and Increases in Earnings by : Gregory Smith Miller

Download or read book Voluntary Disclosure and Increases in Earnings written by Gregory Smith Miller and published by . This book was released on 1998 with total page 198 pages. Available in PDF, EPUB and Kindle. Book excerpt:

International Convergence of Capital Measurement and Capital Standards

Author :
Publisher : Lulu.com
ISBN 13 : 9291316695
Total Pages : 294 pages
Book Rating : 4.2/5 (913 download)

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Book Synopsis International Convergence of Capital Measurement and Capital Standards by :

Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Private Ownership and the Cost of Public Debt

Author : Brad A. Badertscher
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Private Ownership and the Cost of Public Debt by : Brad A. Badertscher

Download or read book Private Ownership and the Cost of Public Debt written by Brad A. Badertscher and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A number of studies have examined the effect of public and private ownership on the cost of debt and conclude that the cost of debt of privately owned firms is higher, driven mainly by the poorer information environment in which these firms operate. We extend this strand of research in two ways. First, we identify and empirically establish the mechanisms that bring about a higher cost of debt to privately-owned firms, namely the limited access that these firms have to the equity capital market, their high rate of management and private-equity ownership, and their less conservative reporting. Second, we improve the reliability of the estimates of the difference in the cost of debt between privately- and publicly-owned firms. This is accomplished through the use of a sample consisting of publicly-owned and privately-owned firms that have public debt and are therefore subject to identical reporting requirements. Certain data and design features allow us to better control for other factors that might lead to the observed difference in the cost-of-debt between the two groups of firms. The results contribute to our understanding of the role of ownership type on the cost of capital.

Earnings Quality

Author : Jennifer Francis
Publisher : Now Publishers Inc
ISBN 13 : 1601981147
Total Pages : 97 pages
Book Rating : 4.6/5 (19 download)

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Book Synopsis Earnings Quality by : Jennifer Francis

Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Voluntary Nonfinancial Disclosure and the Cost of Equity Capital

Author : Dan S. Dhaliwal
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Voluntary Nonfinancial Disclosure and the Cost of Equity Capital by : Dan S. Dhaliwal

Download or read book Voluntary Nonfinancial Disclosure and the Cost of Equity Capital written by Dan S. Dhaliwal and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms' cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations and among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.