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Disclosure level and cost of equity capital: evidence from the banking industry

Author

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  • Sunil Poshakwale

    (Financial Management, Business School, The University of Hull, Hull HU6 7RX, UK)

  • John K. Courtis

    (Department of Accountancy City University of Hong Kong, Kowloon, Hong Kong)

Abstract

The impact of voluntary disclosures on cost of equity capital is of significant interest to investors and managers. Using a disclosure scoring model this association is examined for 135 banks from Europe, North America and Australia. After controlling for the cross-sectional variation in beta, firm size, price to book value and price to earnings ratios, the study found that higher disclosure levels are associated with a reduction in cost of equity capital. Disclosures about risk management practices seem to most influence the reduction in the cost of equity capital. European banks show greater reduction in the cost of equity capital from improved disclosures compared to their non-European counterparts. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Sunil Poshakwale & John K. Courtis, 2005. "Disclosure level and cost of equity capital: evidence from the banking industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(7), pages 431-444.
    • Handle: RePEc:wly:mgtdec:v:26:y:2005:i:7:p:431-444
    DOI: 10.1002/mde.1256
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    4. STEFANESCU Cristina Alexandrina, 2014. "Corporate Governance „Actors”’ Capability And Risk Information Transparency – Empirical Study On European Banking System," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(2), pages 98-107, August.
    5. Raf Orens & Walter Aerts & Denis Cormier, 2010. "Web‐Based Non‐Financial Disclosure and Cost of Finance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9‐10), pages 1057-1093, November.
    6. Erlane K. Ghani & Nur Azrin Mat Tarmezi, 2016. "The Effect of Corporate Disclosure Guide on Information Disclosure among Malaysian Public Listed Companies," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(9), pages 362-376, September.
    7. Schreder, Max, 2018. "Idiosyncratic information and the cost of equity capital: A meta-analytic review of the literature," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 142-172.
    8. Schmidhammer, Christoph & Hille, Vanessa & Wiedemann, Arnd, 2020. "Performance of maturity transformation strategies," Discussion Papers 58/2020, Deutsche Bundesbank.
    9. Christine Botosan, 2006. "Disclosure and the cost of capital: what do we know?," Accounting and Business Research, Taylor & Francis Journals, vol. 36(S1), pages 31-40.
    10. Binlei Gong & Robin C. Sickles, 2021. "Resource allocation in multi-divisional multi-product firms," Journal of Productivity Analysis, Springer, vol. 55(2), pages 47-70, April.
    11. Agnieszka Judkowiak, 2021. "Disclosure Practices of Information in the Field of Financial Instruments: Evidence from Polish Companies Listed in the Warsaw Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 468-493.
    12. Nadine Gatzert & Dinah Heidinger, 2020. "An Empirical Analysis of Market Reactions to the First Solvency and Financial Condition Reports in the European Insurance Industry," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(2), pages 407-436, June.
    13. Jinhan Pae & Tae Choi, 2011. "Corporate Governance, Commitment to Business Ethics, and Firm Valuation: Evidence from the Korean Stock Market," Journal of Business Ethics, Springer, vol. 100(2), pages 323-348, May.
    14. Cristina Alexandrina Ștefănescu, 2014. "Transparency in European banking system – a technical and economic approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(51), pages 91-105, March.
    15. Mohammad I. Jizi & Robert Dixon, 2017. "Are Risk Management Disclosures Informative or Tautological? Evidence from the U.S. Banking Sector," Accounting Perspectives, John Wiley & Sons, vol. 16(1), pages 7-30, March.
    16. Pasiouras, Fotios & Samet, Anis, 2022. "Social capital and the cost of bank equity: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 141(C).
    17. Sutharson Kanapathippillai & Dessalegn Mihret & Shireenjit Johl, 2019. "Remuneration Committees and Attribution Disclosures on Remuneration Decisions: Australian Evidence," Journal of Business Ethics, Springer, vol. 158(4), pages 1063-1082, September.
    18. Mohammad Jizi, 2017. "The Influence of Board Composition on Sustainable Development Disclosure," Business Strategy and the Environment, Wiley Blackwell, vol. 26(5), pages 640-655, July.

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