Cost of capital and earnings transparency |
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| Authors: | Mary E. Barth Yaniv Konchitchki Wayne R. Landsman |
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| Affiliation: | 1. Graduate School of Business, Stanford University, Stanford, CA 94305, USA;2. Haas School of Business, University of California at Berkeley, Berkeley, CA 94720, USA;3. Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599, USA |
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| Abstract: | We provide evidence that firms with more transparent earnings enjoy a lower cost of capital. We base our earnings transparency measure on the extent to which earnings and change in earnings covary contemporaneously with returns. We find a significant negative relation between our transparency measure and subsequent excess and portfolio mean returns, and expected cost of capital, even after controlling for previously documented determinants of cost of capital. |
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