Does hedge disclosure influence cost of capital for European banks? |
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| Institution: | 1. College of Business Administration, Ajman University, United Arab Emirates;2. Bradford School of Management, University of Bradford, UK;1. School of Accounting, Information Systems & Supply Chain, RMIT University, 445 Swanston, Melbourne, VIC 3000, Australia;2. School of Accounting, Information Systems & Supply Chain, RMIT University, 445 Swanston Street, Melbourne, VIC 3000, Australia;1. Department of Finance, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, VIC 3125, Australia;2. School of Economics, Finance and Marketing, RMIT University, Australia;3. School of Banking, University of Economics Ho Chi Minh City, 59C Nguyen Dinh Chieu Street, District 3, Ho Chi Minh City, Viet Nam |
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| Abstract: | Upon extracting and quantifying relevant hedge information from the narrative section of European banks annual reports, this paper examines the impact of such information on cost of capital as measured by weighted average cost of capital (WACC), cost of equity (COE) and cost of debt (COD)]. Using a sample of 1885 bank-year observations from 19 countries, we find that textual hedge disclosure leads to a significant reduction in WACC, COE, and COD; thus explains a substantial portion of variation in cost of capital. Further, we find that these results are stronger in countries with high corruption and financial openness. Our results are robust to several controls and model specification. Collectively, our findings enrich prior evidence which examines the economic consequences of hedge disclosure. |
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