Shareholder rights, financial disclosure and the cost of equity capital |
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Authors: | C S Agnes Cheng Denton Collins Henry He Huang |
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Institution: | (1) College of Business, University of Houston, Houston, Texas, 77204-6021;(2) School of Accountancy, University of Memphis, Memphis, Tennessee, 38152;(3) College of Business, Butler University, Indianapolis, Indiana, 46208 |
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Abstract: | This study extends research into whether shareholder rights and disclosures of financial-related attributes are associated
with firms' costs of equity capital. Using cost-of-equity-capital estimates derived from expected earnings growth valuation
models, we find that firms with stronger shareholder rights regimes and higher levels of financial transparency are associated
with significantly lower costs of equity capital. We also find evidence that greater financial disclosure and stronger rights
regimes interact in reducing firms' costs of equity capital, such that the effect of a high level of one mechanism is minimal
when it is combined with a low level of the other. Finally, we document that neither factor dominates the other in their associations,
and that there are tradeoffs between disclosure levels and shareholder rights in their influence on firms' implied costs of
equity capital.
JEL Classification G30 · M10 |
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Keywords: | Corporate governance Shareholder rights Disclosure Cost of equity capital |
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