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The Complementarity Between Segment Disclosure and Earnings Quality, and its Effect on Cost Capital

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Listed:
  • Belén Blanco
  • Juan M. Garcia Lara
  • Josep A. Tribó Giné

    (Department of Business Administration Universidad Carlos III de Madrid)

Abstract

We investigate the role of earnings quality in determining the levels of segment disclosure, and hether and how better quality earnings and segment disclosure influences cost of capital. Using a large US sample for the period 2001-2006, we find a positive relation between earnings quality and levels of segment disclosures. We also find that firms providing better quality segment information, contingent upon good earnings quality, enjoy lower cost of capital. We base our empirical tests on a self created index of segment disclosure. Our results contribute to a better understanding of (1) the incentives for providing segment disclosures, and (2) how account ing quality (quality of segment information and earnings quality) is related to the cost of capital.

Suggested Citation

  • Belén Blanco & Juan M. Garcia Lara & Josep A. Tribó Giné, 2009. "The Complementarity Between Segment Disclosure and Earnings Quality, and its Effect on Cost Capital," Working Papers 1005, Departament Empresa, Universitat Autònoma de Barcelona, revised Feb 2010.
    • Handle: RePEc:bbe:wpaper:1005
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    References listed on IDEAS

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    More about this item

    Keywords

    Segment disclosure; earnings quality; diversification; information asymmetries; forecast error; cost of capital.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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