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Does graph disclosure bias reduce the cost of equity capital?

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  • Flora Muiño
  • Marco Trombetta

Abstract

Firms widely use graphs in their financial reports. In this respect, prior research demonstrates that companies use graphs to provide a favourable outlook of performance, suggesting that they try to manage the impression created in users’ perceptions. This study tests whether by means of distorted graphs managers are able to influence users’ decisions in the capital market. By focusing on the effects of distorted graphs on the cost of equity capital, we provide preliminary evidence on one of the possible economic consequences of graph usage. The results of this investigation suggest that graph disclosure bias has a significant, but temporary, effect on the cost of equity. Moreover, our results highlight the important role played by the overall level of disclosure as a conditioning factor in the relationship between graphs and the cost of equity. Consequently, the results of the current study enhance our understanding of the complex interactions that take place in the stock market between information, information intermediaries and investors.

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  • Flora Muiño & Marco Trombetta, 2009. "Does graph disclosure bias reduce the cost of equity capital?," Accounting and Business Research, Taylor & Francis Journals, vol. 39(2), pages 83-102.
    • Handle: RePEc:taf:acctbr:v:39:y:2009:i:2:p:83-102
    DOI: 10.1080/00014788.2009.9663351
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