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Cost of capital and earnings transparency

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  • Barth, Mary E.
  • Konchitchki, Yaniv
  • Landsman, Wayne R.

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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Bibliographic Info

Article provided by Elsevier in its journal Journal of Accounting and Economics.

Volume (Year): 55 (2013)
Issue (Month): 2 ()
Pages: 206-224

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Handle: RePEc:eee:jaecon:v:55:y:2013:i:2:p:206-224

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Web page: http://www.elsevier.com/locate/jae

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Keywords: Cost of capital; Earnings transparency;

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Citations

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Cited by:
  1. Orie Barron & Xuguang Sheng & Maya Thevenot, 2013. "Information Environment and The Cost of Capital," Working Papers 2013-003, The George Washington University, Department of Economics, Research Program on Forecasting.
  2. Kim, Abby, 2014. "The value of firms' voluntary commitment to improve transparency: The case of special segments on Euronext," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 342-359.
  3. Xuguang Sheng & Orie Barron & Maya Thevenot, 2012. "Information Environment and the Cost of Capital: A New Approach," Working Papers 2012-12, American University, Department of Economics.
  4. Lucian MUNTEANU, 2011. "Cost Of Equity, Financial Information Disclosure, And Ifrs Adoption: A Literature Review," Internal Auditing and Risk Management, Athenaeum University of Bucharest, vol. 24(4), pages 67-80, december.
  5. Konchitchki, Yaniv, 2011. "Inflation and Nominal Financial Reporting: Implications for Performance and Stock Prices," MPRA Paper 52928, University Library of Munich, Germany.

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